Oregon State Bar Bulletin AUGUST/SEPTEMBER 2002

Staying Afloat
Finding a safe harbor in today's legal economy
By Cliff Collins

As the state and nation try to break free of the economic downturn, law firms on opposite coasts have experienced extremes.

Some California firms that rode the high-tech bubble that burst have hit the skids. At the same time, some East Coast firms are prospering as businesses go bad.

In Oregon, 'We fall into the great middle ground,' says M. Lynn Spruill, executive director of Stoel Rives, Oregon's largest law firm. 'We like to be not too far on either side.

'The New York firms that are dealing with bankruptcy issues are making a ton of money,' but no such huge bankruptcies are happening here. Conversely, even Oregon firms that relied heavily on high-tech clients generally have not suffered the large layoffs seen in California, where corporate lawyers have been 'let go in 10s, 20s, 30s, 40s,' to where there 'are hundreds in the market' seeking employment, notes Linda Green Pierce, who runs a lawyer search service in Portland.

Still, a sample querying by the Bulletin of how various sizes and types of Oregon firms are faring in the current economic climate indicates that, although many firms are able to see positive trends, others are hurting. A few declined to discuss their situation, or were reluctant to speak for attribution. The head of one large Portland firm comments that most firms' business right now appears 'kind of soft. That's my sense. You can see it in the way they pride themselves on specialties, but are having some lawyers doing other things' owing to lack of work in their normal specialty areas.

Another large firm's leader said it is likely that firms who relied heavily on high-tech and financing for start-ups have seen a drop in business. The firms doing the best seem to be either concentrating on offering a balance of different services, or else they specialize in areas that are in demand.
What follows is a report on different perspectives and opinions shared about Oregon's legal economy in 2002.

Northwest Legal Search Inc. Linda Green Pierce, president of this Portland lawyer recruitment service since 1987, sees this year as the third major swing she has observed in the legal market's supply and demand. The market this year is firm-driven, she says: Firms don't have to wait for candidates who are weighing multiple offers, and firms don't have to pony up bonuses to land the people they want.

'Two years ago there was a limited supply of available talent,' Green Pierce recalls. 'That has absolutely flip-flopped now.' Now firms are 'less busy, with a lot of talent in the trough.' Much of corporate work was 'robust and on a tear' for five or six years, but work in securities and mergers and acquisitions is dead right now, and bankruptcy has softened, she says.

On the other hand, litigation is busy, along with traditional corporate law such as dealing with ERISA, tax and real estate. She says corporate work has picked up lately, but firms are not looking to add people. 'Work was flat early this year; associates want more hours now, and are willing to play catch-up,' says Green Pierce. Firms are 'really working their managers, retooling their corporate people.' Firms are asking attorneys who specialize in one area to do something else, such as real estate. 'They're not switching them to litigators, but [wrestling with] how to use the talent' on hand, she says.

'The good news about Portland is, we tend to be conservative anyway. [Firms] did not overhire; they did not have to lay off large numbers. There was a lack of people when the economy turned. From that respect, [Portland's is] a lot healthier market than Seattle's and others'.'

Bullivant Houser Bailey. Last year was the firm's best. Revenue for 2001 was 20 percent higher than in 2000. As of June 30 this year, Bullivant Houser's revenue is slightly ahead of last year's pace, by 4 percent. The number of lawyers grew by 10 percent in 2001, and so far this year the increase is by 5 percent, says James D. Hibbard, who is in charge of the multicity firm.

A watershed event last year for the firm was the huge Capital Consultants case in Portland, in which Bullivant Houser served as counsel for the plaintiffs' consortium. It was described as the largest pension-fund fraud case in American history. The firm had lots of lawyers working on the case, and its successful outcome brought the firm both revenue and attention. Overall, litigation work is up, and the business practice remains strong, Hibbard says.

The business practice tends to represent mid-size, local companies and focuses less on mergers and more on transactional work, real estate, construction, employment litigation and insurance work, says David A. Ernst, who heads the firm's Portland office.

The firm has been fashioning a strategic plan for the past four to five years and developed 'a sophisticated system of assessing profitability,' according to Hibbard. It began when Bullivant Houser hired a chief operating officer with a master's in business administration. The firm gives non-lawyer managers much more input than many firms do, he says.

Tonkon Torp. 'We've been more fortunate than most people, and we're mighty grateful for it,' says Kenneth D. Stephens, chairman of the managing board, who notes that the firm serves both 'old industries and new. We saw a little slowdown at the end of last year. This year we've seen some uptick. Corporate matters and litigation have been pretty active these days; we're involved in some of that. Financially, it looks like a pretty good year for us.'

However, that doesn't mean the firm hasn't made adjustments with the downturn in the economy. 'We're aware some of our clients are hurting,' Stephens says, and the firm has tried to find solutions and 'share the pain. We don't want to be aggressive on fees.'

Stephens adds, 'A couple of years ago, we didn't get carried away with expansion,' and that has proven a boon in slower times. In general, he feels, 'Here [in Oregon], we ... move a little slower, and maybe that pays off sometimes.'

Stoel Rives. As head of the firm with the most lawyers, M. Lynn Spruill, made a similar observation: 'We're kind of steady folk. Because Oregon's economy is not as robust as we would like it to be, we probably have been protected on the down side.' He sees all large, Northwest firms as in pretty much the same situation: All probably are doing less work and making less money, clients are paying slower, 'appropriately,' he adds, and firms are looking for ways to save money.

In a down market, litigation goes up. Companies try to 'get out of contracts, and bankruptcy work has been steady. Firms 'that focus heavily on corporate issues - there are no IPOs or mergers and acquisitions going on, and minimal refinancing - have wonderful corporate talent waiting for [work]. It'll come back. After several years of fast-paced work, we're taking time to reinvigorate ourselves.'

He likens a firm's having a diversified work base to an individual's owning a well-rounded investment portfolio: If the stock market goes down, you may suffer a loss, but not nearly as much as if all your money is in stocks. 'It's exactly the same concept,' Spruill says.

Schwabe, Williamson & Wyatt. 'Recessions will end, and a good time to get strong and build up is now,' says David F. Bartz Jr. president of the firm and head of its environmental practice. In keeping with that philosophy, and as a sign of Schwabe Williamson's optimism, the firm this year hired Donald L. Krahmer Jr., a leader in emerging-business law.

'We've invested in Don when some people thought that type business was going down,' says Bartz.

'We're having a good year. We prepared for a tough year, in our forecasting. Our bankruptcy practice is good but not through the roof.' Business and litigation practices are 'doing better, but not dramatically better.'

One cushioning factor, he feels, is that 'we didn't jump on the salaries bandwagon like some did.' Income is production-based. 'We felt the pressure [to boost salaries], but the way we responded to it was a little different: If you work a good number of hours, you can make more.'

Klarquist Sparkman, a mid-size Portland firm specializing in intellectual property law, has been spared the layoffs and big drops. 'We don't seem to be affected by the downturn in the economy,' says Ramon A. Klitzke, hiring partner. 'We seem to have weathered it well.' He is aware of similar firms to his who are not doing so well, mostly in other parts of the country, even in Seattle. But 'as far as firms in Portland, they seem to be doing reasonably well.'

Also, he seconds Green Pierce's observation that, 'if a firm has the need to hire, this is a good market to hire good candidates, [more so] than in the past.' Klitzke's theory as to why Portland intellectual property firms have fared better than some others is: 'We were not as aggressive in hiring during the boom times.' In addition, relatively speaking, 'Portland does not have a thriving Internet-based community in our back yard,' which means it has not suffered to the degree some Silicon Valley firms have.

Instead, Portland intellectual property firms have more diverse clients, he says, such as electrical-software practices and biotech litigation work, a factor which has helped in relation to many other firms not so diverse.

Gaydos, Churnside & Balthrop, a small Eugene firm, continues 'to do economically better each year,' says Gerry Gaydos. Being diversified is important, both because of the city's size and because Eugene's business base has become more diverse after the timber business slowed in the 1980s.

'One of the beauties of practicing in a small town is, you have to do a lot of different things,' Gaydos says. 'You can be a debtor-creditor lawyer, an estate lawyer, a business lawyer. [A firm almost has to be able to say] 'We're a lawyer, and we can help you.'' He notes that some parts of the downturn have helped his practice. 'We have a fairly strong debtor- creditor practice. As the economy goes bad, that increases.'

A couple of firms have gone out of business in town, but 'everyone else is doing well,' he says. 'We never got caught up in trying to compete for new associates. Eugene folks never did that, because it's a limited economy - the nature and character are less sophisticated.' Moreover, Gaydos adds: 'I don't think our overhead got out of control. I think most of the firms tend to be conservative: They don't borrow a lot and keep control of expenses.'

Land-use laws, zoning designation changes, expanding new property - 'these kind of things happen all the time, even in down economies, because someone is always doing well.' Certain types of practice, such as business succession, are important, because of the large number of family-owned businesses, Gaydos observes. Among its clients, the firm represents banks, small businesses, accounting firms, other law firms and medical practices. 'It's an interesting mix,' he says. 'It's something we have to do.'

Much of business is by word of mouth, where a premium is placed not on being the 'best whatever,' but being competent and knowing people, Gaydos says. 'Here, that's real important. That's hard for some associates to grasp, [that] it takes time. ... It's difficult to attract hard-driving associates. People have to like the mix of personal and professional [opportunities]. Some feel they have to go [elsewhere to advance],' which, he adds, is a notion he does not believe is true.

ABOUT THE AUTHOR
Cliff Collins is Portland-area free-lance writer and frequent Bulletin contributor.

2002 Cliff Collins


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