Res Ipsa Loquitur: Work Trends at New Economy Firms

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Res Ipsa Loquitur: Work Trends at New Economy Firms [by Peter L. Thottam]

You may have heard the story of my job

neys that I know, wish someone had offered

working as an analyst in New York with Gold-

search already in some detail. It has been

us before we graduated from our respec-

man, Sachs & Co. and, later, as a banking

featured in the Wall Street Journal, was a

tive law schools in the late 1990s. I plan to

and healthcare consultant with the Advisory

topic of great discussion on the Greedy As-

submit a follow-on more theoretical piece to

Board Company in Washington, D.C. I also

sociates Boards and even led to a story in L

BCG next year. In that piece I will write more

worked on a Chapter 11 real estate bankrupt-

magazine (an American Lawyer affiliate) and

extensively about the revolution that I believe

cy and reorganization in Los Angeles. I knew

a write-up in the Los Angeles Daily Journal

that globalization, next generation Internet,

the meaning of “risk” and that businesses

(where I had placed an ad in March 2002

collaborative and wireless technologies ,

were not always winners.

seeking employment after dealing with a

pending government rollouts of broadband,

frozen job market in January and February of

XML/IP-videoconferencing protocols, and

I was at WSGR for a total of approximately

2002). You may have even visited my website

increasing movement towards multi-disci-

21 months from August 1999 until May 2001.

at www.peterthottam.com where I widely

plinary service offerings are just beginning to

I worked in the Larry Sonsini/Marty Kor-

publicized my job search. I am one of the few

unleash on the legal profession.

man Corporate Securities Practice Group,

New Economy victims who has chosen to give what has happened to the careers of many

arguably one of the most demanding practice My First Legal Job

former associates a voice. I graduated from

groups at the Firm, which was staffed with several excellent attorneys. My group was

Yale College with honors and a high GPA. I

It was a bright sunny Monday morning in

generally known within the Firm as the M&A

later attended the University of California-

August 1999, the outside air was crisp and

“swat team.” I worked with three WSGR

Berkeley for law school and then worked

there was a palpable excitement in the room.

partners who were all ex-Fried Frankers

for all the “right” Silicon Valley law firms.

I found myself ensconced in a large room at

(i.e., they were all former associates who had

Indeed, my record would appear stellar in

Wilson Sonsini Goodrich and Rosati’s (“WS-

come to Wilson Sonsini together in a joint

most respects to many attorneys. However,

GR’s”) new hire orientation at the gleaming

exodus from Fried Frank’s NY office). These

as this article will demonstrate, the New

650 Page Mill Road headquarters in Palo

guys were charged with building a New York

Economy is not something that has spoken

Alto. “650” was colloquially referred to as the

style machismo at WSGR with a “take no

well for the legal profession, and it has not

“Death Star” (i.e., the one from Star Wars)

prisoners” culture. It was tough but -at least

been kind to me.

by attorneys at nearby Cooley Godward LLP,

at times-dynamic, fun and challenging group

Fenwick & West LLP and Brobeck Phleger &

in which to work.

I want to relate to you an insider associate’s

Harrison LLP. The term was even used in a

view of what has happened in the last five

tongue-in-cheek and self-deprecating sort of

years and is continuing to happen in work-

way at WSGR.

ing environments at many large law firms. I

My experience at WSGR included participation in several high profile M&A transactions, two public offerings, and a range of venture

also will offer a mix of practice insights and

I was about to start what I hoped would be a

capital financings, contract reviews, foreign

general advice.

promising legal career at WSGR, a dynamic

acquisition agreements, and other legal

and fast-paced place to work in the fall of

projects. I had the opportunity to work with

I’m the first to acknowledge that I’ve only

1999 and in early 2000. The culture was

Bank of America, Sun Microsystems, Inc.,

practiced for a couple of years. Accordingly,

positive and bubbling with possibilities. I had

Hewlett-Packard, Tibco Software Inc., GoTo.

some of my observations should be taken

graduated from law school with more busi-

com, NetFlix.com, Cypress Semiconduc-

with a grain of salt. Most of the insights and

ness experience than many of my colleagues

tor, 3Com, Palm Computing, Homestore.

advice in this article, however, are precisely

(see my resume, viewable at www.peterthot-

com, Healtheon/WebMD, ScanSoft, Rambus,

the type that I, along with dozens of attor-

tam.com). My first job after Yale College was

Brocade Communications, Excite@Home, and

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a range of private company clients.

Spiking and Drinking the Kool-Aid

and evening cafeteria services were halted.

associates. Throughout the remainder of

By the beginning of Fall 2000, 650 Page Mill,

2000 and during the course of 2001, the ac-

which had previously always been alive and

counts receivable at tech-based law firms

busy at night, was generally deserted.

(which had financed much of their expansion

I spent my first 8 months at WSGR working

through reaping rich IPO proceeds, making

intensely; more often than not I worked at

According to the Venture Economics and the

short-term debt issuances, taking advantage

least 6 days a week and 12-14 hours a day

National Venture Capital Association (http://

of escalating Dot-com series financings, and

during the weekdays. I enjoyed being a cor-

www.nvca.org/nvca05_13_02.html), there

encouraging general partner paid-in-capital

porate securities attorney at WSGR and gen-

were 81 IPOs taken to market in the first

contributions) went through the roof.

erally looked forward to Larry Sonsini’s peri-

quarter of 2000, 9 IPOs taken to market in

odic voice mails to the 800-plus attorneys at

the first quarter of 2001, and 4 IPOs taken to

the Firm articulating his vision of the Firm’s

market in the first quarter of 2002. I think the

bright and hard working attorneys through-

place in the emerging “New Economy.” I was

data is meaningful and the graph that follows

out Palo Alto, Menlo Park and San Fran-

passionate about the Firm’s potential and

is a powerful illustration of what happened

cisco abruptly learned just how completely

had a work ethic that was galvanized by the

between 1995 and 2002.

“fungible” associates were to the partners

As the work left many firms, hundreds of

running their firms and how closely

Firm’s vision of the future.

the culture in the legal profession had With the unprecedented ascent of the Nas-

come to mirror corporate America in

daq, I continued to be concerned that things

its day to day profit concerns.

were moving too rapidly. While I think very Finally Being Bitten

highly of the attorneys I practiced with at WSGR, unfortunately many of them, including to some degree even I, were “drinking

In March 2001, WSGR unexpectedly an-

the Kool-Aid.” Just by going to WSGR, we

nounced the opening of New York and

acknowledged to one degree or another that

Salt Lake City offices. The following

we thought that the party could continue

week, I requested a meeting with my

indefinitely. The venture capitalists on Sand

group’s head partner. At the meeting I asked for a transfer to the New York

Hill Road in Menlo Park were even worse,

office. Why? I had just married during the

arguably spiking everyone’s Kool-Aid with According to Dealogic LLC, the number of

preceding New Year’s Eve and my wife was

tech IPOs swung from about 250 in 1999 to

working in New York. A transfer to the newly

Popping the Dot-Com Bubble

just 20 last year!

announced New York office seemed, at the

Everything changed with a series of sharp

Most of the firms in the Bay Area had rain-

dilemma we were facing due to the hiring

declines in the Nasdaq during a two week

maker-geared compensation systems and a

slowdown in the Bay Area banking sector.

period in April 2000. In an instant, it seemed,

culture driven by the opportunity for riches

Furthermore, work was just unbearably slow

the markets crashed and the caviar, extrava-

through growth of private equity stakes in

in Palo Alto. Senior associates and junior

gant meals and massage sessions at Don-

clients. This equity focused culture finally

partners were keeping work to themselves

nelly and at Bowne (i.e., “the Printers”) came

came back to haunt many law firms through-

in their efforts to keep up their billable

to an end. I continued working for some

out the Bay Area. According to the Bay Area

hours. Day-to-day life and office politics had

time on an IPO that was eventually shelved.

legal press, in 1999 WSGR participated in just

become truly surreal.

Coming to Donnelly was like entering a

under 170 IPOs. In 2000 that number went

ghost-town. Instead of calling WSGR’s office

down to about 40. By 2001 the number was

the “Death Star,” many of us until then had

less than 10 with high margin M&A activity

transfer. With work slow, and people drop-

insisted on referring to it as the “Enterprise.”

similarly drying up.

ping out of the firm for unexplained reasons,

generous doses of Ketel-One.

time, like the ideal solution to the geographic

Admittedly, I took a risk in asking for a

there was a sense of doom in the air. I really

Increasingly, we realized that the “Death Star” moniker was becoming more appropri-

By the end of the ensuing summer, law firms

didn’t know whether the New York office had

ate as the ambience at the firm became truly

throughout the Bay Area began to ramp up

enough work to need an associate from the

moribund. A decision was made to shut off

what were, at least ostensibly, performance

Palo Alto office when I made the request.

secretarial support services at late hours

based dismissals of junior and mid-level

Furthermore, I was making it clear by asking

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for a transfer to New York and stating my

doors looking for work. There just was not

declines. Junior corporate associates are

reason for the request that I would probably

enough work to go around. Some more

expected to be able to make conforming

be moving to New York eventually anyway.

senior attorneys at OMM and other firms

changes to financings and other types of

around town were able to retool and transfer

deals, to pay a great deal of attention to de-

to other divisions.

tail during deal closings, and to be masters

Several days later the partner called me

at form document tailoring and management.

into a meeting in his office, stared at me and, without batting an eyelid, said, “Pe-

I certainly cannot blame OMM for the decline

The political and client management skills all

ter, I’m afraid that we have decided that

in work that affected not just them but the

become more important once the associate’s

it’s in our mutual interests for you to leave

entire business sector. Work may have been

drafting and general work product manage-

WSGR.” That was it. I was totally floored. I

slow at O’Melveny, but I can say that I did

ment skills are comfortably established.

had received a glowing performance review,

receive some terrific mentoring there dur-

However, if there is no work to be done, then

positive feedback from him on several deals,

ing the times when I was busy (particularly

there simply is no work to be done. Even a

and a full bonus plus a merit addition from

from one outstanding senior associate in the

mega-law firm with over 800 attorneys has to

him several months earlier; now, I hear this.

Los Angeles office). Law is a business and

make cuts in such an environment.

There was no warning - absolutely none.

the law firms I was working at are busi-

When I pressed for an explanation, he said

nesses too. If the work is not coming in for

A law firm associate is completely respon-

that there was nothing further to say and that

an extended period of time, there is certainly

sible for his or her own career and has to

a decision had been made. I was given three

no reason for a firm to keep you employed.

hedge his or her prospects. The reality of

months to secure other employment.

Nevertheless, this is certainly not something

law firm associate life is that an associate’s

I expected when I entered the working world.

primary asset at a law firm is his or her time,

“New Economy” Associates

ates. It is only much later in an associate’s

i.e. the billable hours that he or she gener-

Having learned a great deal, I left WSGR in mid-May of 2001 and immediately started

career that a book of business becomes a

work for another top Bay Area law firm, O’Melveny & Myers (“OMM”), in their San

In late 1999, an attorney in my practice group

significant asset. It is my opinion that, for

Francisco office. I had received four other

at WSGR walked into my office and told me

many large firms at least, the system’s

offers (two in the Bay Area and two in New

about the Firm’s decision to match Gunder-

incentive structure is lop-sided and rewards

York) in May 2001. I chose OMM’s San Fran-

son Dettmer Stough Villeneuve Franklin &

inefficiency in contrast to efficiency. I further

cisco office because my feeling was that they,

Hachigian’s recently announced substantial

believe some larger law firms feed off risk

among the firms where I had offers, were in

pay raise for its junior associates. We were

aversion and dangling “Sword of Damocles”

the best position to withstand the downturn

giddy with delight and relatively clueless

threats of performance-based layoffs in

in the market. Within several weeks of arriv-

about the longer term implications of the

order to get the maximum number of billable

ing at OMM, though, I realized that virtually

economic model that the pay raise was trap-

hours out of their associates.

every Bay area firm’s corporate practice was

ping law firms throughout the United States

affected. None of the firms I had received of-

into.

“New Economy” Partners

re-extend the offers that they had made sev-

Tech-focused BigLaw firms today pay pre-

The system is, ultimately, a managed flow

eral months earlier -- presumably because

mium base salaries to first year associates

of legal labor with misaligned incentives in

of similar slowdowns at their own firms.

of $125,000 to $140,000. This doesn’t include

place. It portends to offer fantastic compen-

sign-in bonuses and year-end bonuses

sation rewards to tracked attorneys with

I started looking for other opportunities but

which, respectively can be as high as $10,000

what smart attorneys realize is an increas-

market conditions, already terrible by that

and $25,000. They fully expect their attorneys

ingly unlikely and remote chance at a start-

summer, began to deteriorate further in July

to work at least 80 to 100 hours per week

ing partner salary in the neighborhood of

and by the end of August, firms had begun

which translates to 2,300 to 3,200 billable

$350,000 to $500,000 around the age of 35 to

laying off attorneys en masse and publicly.

hours per year (I billed 2,700 my first year,

45 in return for billing 2,500 to 3,200 hours a

Cooley was first, Gunderson, Shearman, and

2,200 my second year, and was on track to

year. Ultimately, law firms sell their time and

Brobeck soon followed. September 11, 2001

bill 1,800 my third year).

fers from months earlier were in a position to

junior attorneys offer little in the way of client relationships built on trust and past work

was the final clincher. Corporate work came to a virtual standstill over the next three

It’s my opinion that law school graduates

relationships, potential billing bases, or real

weeks at most firms in the Bay Area and I

generally don’t appreciate that even large

substantive expertise in specific areas of law

found myself daily knocking on partners’

law firms are not insulated from economic

to make them anything but fungible, espe-

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cially during significant economic downturns.

and 6,000 associates have been laid off over

cases, your friends, and they will not hesitate

the last two years. Res Ipsa Loquitur is Latin

to lay you off if their compensation is at

However, most associates rarely ever have

for “the thing speaks for itself.” I think that

stake; work hard, do the best work possible,

a chance in making partner at BigLaw firms.

at many firms -- albeit not all -- associates

learn as much as possible, always keep your

According to a survey by The Recorder (a Bay

are now entirely expendable. At these firms,

ears and eyes open for political and econom-

Area legal journal), the odds are in fact less

absolutely no one is indispensable. The truth

ic realities at the firm; and, perhaps most

than 15%. The odds are probably significantly

is that YOU may not be indispensable.

importantly, network whenever possible. It’s always easier to find work when times are

less than 10% these days. Partners at many of the top tech firms got in on the action early

A recent Reuters business report put Bay

good. However, downturns can be fast, furi-

on. They boarded the private equity trains to

Area office vacancy rates at a stunning 24

ous and unforgiving, making it difficult to get

partnership and to vast riches long before

percent. The commercial vacancy rate in San

out in time; there is, regrettably, very little

the trains had even left the station.

Francisco’s SoMa district (south of Market

loyalty in this business; therefore, if the right

Street) is now at an incredible 50 percent!

opportunity comes along, one should not

The California unemployment rate as of April

hesitate to take it.

Lessons Learned

2002 stood officially at 6.4 percent, in stark Due to the current global economic and

From 1996 to 1999 there was a shortage of

contrast to the near 2 percent unemployment

young legal talent, i.e. attorneys in their late

rate that prevailed two years ago. According

geopolitical malaise I -- along with now thou-

20s to late 30s, especially in major met-

to the American Bar Foundation there are

sands of other junior associates throughout

ropolitan areas like the Bay Area or New

now over a million-and-a-half lawyers in the

the country -- have reached a crossroads

York City. This shortage was coupled with

United States. Put simply, the profession has

in our legal careers where we may have to

an unprecedented startup and equity boom

a supply and demand problem compounded

pursue opportunities available outside the

that detracted from the supply of available

by the economic downturn and the remark-

traditional boundaries of the legal profes-

attorneys and that resulted in ballooning sal-

able 1999-2000 changes in associate salary

sion. Perhaps doing so will be a good thing in

ary structures across the legal spectrum. At

structures.

the long run.

changing in the nature of law firm manage-

Here is some final -- albeit qualified -- ad-

- Peter Thottam (www.peterthottam.com)

ment dynamics.

vice I’ll offer to New Economy Associates:

the same time, something fundamental was

(1) Pick a firm that has a well-diversified

Note: Peter Thottam can be reached at

Partners at some law firms are outstanding

practice, not one that is largely dependent

peterthottam@yahoo.com or through his

mentors. Others are generally looking out for

on one particular area of the economy, such

website at www.peterthottam.com.

their own self interest only. Sadly, especially

as technology; (2) Select a firm that has a

because of the economic downturn of the

reputation for decency and honesty (rela-

last two years, increasingly gone are the

tively speaking); many of us now know why

traditional loyalty and apprenticeship codes

Wilson is called the Death Star; an attorney

and norms of law firm practice management.

who wants to be treated humanely in bad

Associates have become, in some respects,

times probably shouldn’t join a firm with

as interchangeable as their clients working

such a nickname; (3) Consider going to a

within an increasingly common and ruthless

firm where you can rotate through several

anonymity in their day-to-day lives.

practice areas during your first year or two; yes, this will put you at a slight disadvantage

A tectonic shift unfolded in the nature of as-

versus colleagues who focus exclusively on,

sociate-partner relationships during the late

say, corporate work their first two years, but

1990s. The real implications of that shift only

in a serious down-turn, you as an associate

became clear to me after the 2000 market

will be better able to transition to another

downturn. What happened to many of the at-

area of the law; it also really never hurts for

torneys I attended law school with and knew

a corporate associate to understand court

in the Bay Area and New York was not what

room dynamics, litigation and IP either; (4)

we had anticipated. What is the plain truth?

Finally, remember that the practice of law is

Many associates have become fungible “com-

becoming more and more of a business; the

modities.” Estimates are that between 4,000

partners at BigLaw firms are not, in most

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