What Should I Be Thinking About Before the Next Economic Downturn?
While the M&A and finance markets continue to boom and demand for transactional associates remains strong, at some point this prolonged economic upturn will come to an end. We are already seeing an uptick in hiring for restructuring associates and partners. While we are not sounding any alarms yet, it is a good time to think about how the next economic slowdown will impact your career and what you should be doing now to best prepare yourself.
Q: How will my firm fare during a slowdown?
A: In a legal market already fraught with increased client competition and mounting pressure on fees, it is smart to take note of your firm’s relative financial success and stability. One factor to consider is how much revenue is derived from transactional work as opposed to litigation, regulatory and restructuring matters. Robust countercyclical practices enable firms to remain profitable during economic downturns and therefore offer more job security than firms with only strong corporate capabilities. Another factor to consider is how your firm’s revenue per lawyer (“RPL”) compares to its peers. Firms with strong RPLs will be better positioned to withstand an economic decline because they have less excess capacity in their ranks. Also, the number of foreign offices may have a more pronounced effect in a down market as they typically are not as profitable and can become a drag in a global slowdown.
Q: What happens to underperforming firms?
A: If your firm is presently showing signs of underperformance, you may already be wondering how it will stay afloat if the economy softens. Firm mergers and, to a lesser extent, dissolutions do occur in weakening markets as the falloff in revenue exacerbates underlying weaknesses. What could a merger mean for your career trajectory? It is hard to know without having a sense of what a merger partner will look like. Firms usually try to identify merger partners that align with their client and practice group orientations as well as their partnership and compensation structures. When a firm is distressed, it may not have the luxury of seeking an ideal partner and you may find yourself somewhere that does not invest heavily in your practice area or in a combined group that is much larger, making it much harder to stand out.
Q: Are layoffs inevitable in a softening market?
A: The economic crisis of 2008 and 2009 brought widespread layoffs as well as ways to address excess capacity, such as deferrals and sabbaticals. Those were dramatic times, and no one is predicting a decline of that magnitude anytime soon. That said, when work falls off, firms may use decreased work flow as an opportunity to critically evaluate their team and adjust the ranks as appropriate. As discussed below, you should be taking steps now to best position yourself for down the road.
Q: What can I do now to protect myself later?
A: If you have solid skills, shown strong work ethic and built goodwill with your partners, you will undoubtedly feel more secure in a slower economy. You should be using this robust market to maximize your experience and your personal brand. Seek and incorporate feedback from your mentors, get staffed on important client matters and develop meaningful relationships internally and with opposing counsel. Taking these steps now underscores your value to your firm and will pay off down the road. Also, try to diversify your practice and take on matters that will not dry up in a slower economy. If you are a capital markets associate, do not focus solely on equity offerings and IPOs, which will taper off in a slower economy, but instead try to handle some debt deals and restructuring matters too. A broad range of skills will allow you to maintain your utility in any type of economy.
Q: Can I make partner during a recession?
A: Absolutely. Firms continue making partners during recessions, but at a much slower rate. Because profitability may switch from some groups to others, you should expect partnership promotions to follow this shift. Countercyclical practice areas may see more partner elevations. Just because bankruptcy and litigation associates may be made partners in greater numbers, does not mean that corporate associates will not get promoted. However, it does mean that their promotion track may be longer and that fewer corporate attorneys may become partners in any given year than they otherwise would in a healthy economy.
Q: What about a lateral move or transition in-house?
A: An impending economic slowdown in and of itself should not drive a career decision one way or another. After all, there is never a “right” time to make a move. Regardless of the economy’s strength, you should carefully consider any lateral or in-house opportunity, paying close attention to a position’s responsibilities, growth, advancement, work/life balance and compensation. However, with the possibility of a decline on the horizon, you should be more mindful of the financial health of your potential new employer and how recession-proof its business is. While the age old saying “last in, first out” can determine layoffs at companies, banks and other in-house employers, law firm layoffs are typically more performance based, so the fact that you may be the most recent hire does not necessarily mean you will be the first to go.
It is important for associates to take stock of larger economic trends and how these trends affect their careers. Right now, it is particularly critical to think about what a recession means for your career path. I am always happy speak with associates about what an economic downturn means for them individually based on their practice and goals, so please do not hesitate to reach out if you have any questions.