If you thought 2009 was bad…

Are we there yet!?”

Like children in the backseat of the car on a long road trip, lawyers can’t seem to stop asking when this lengthy, nasty, grinding recession will be over. When can we all exhale and return to the salubrious environment of, say, 2006?

Perilous is the business of predictions (‘you could lay all the economists in the world end to end and they wouldn’t reach a conclusion’…), but I’m here to urge you to view reports of ‘green shoots’ with a gimlet eye. Some data:

The Wall Street Journal surveyed economists early this summer to see what shape they thought the recovery would assume: Only 25 per cent chose ‘U’ or ‘V’, while a shocking 20 per cent predicted ‘the Big D, II’ and 55 per cent – a consensus – voted for ‘L’. Nothing quick, in other words;
Recessions driven by credit market meltdowns last at least twice as long as those driven by inventory build-ups or interest rate spikes;
US consumers are in the very early stages of a multi-year retrenchment (Goldman Sachs, Morgan Stanley, JP Morgan Chase and many many other analysts);
Reported US unemployment is on track to exceed ten per cent for most of 2010, but: workers on unpaid leave, or involuntarily part-time, and those who are ‘discouraged’ don’t count; and, all of the following indicators are the worst they’ve ever been since data collection began nearly 50 years ago:

Average workweek – shortest ever
(33 hours);
Average duration of unemployment – longest ever (25 weeks); and,
‘Long-term’ unemployed (> six months) – highest ever;

Credit markets are still sick and securitisation non-existent; and,
Real, after-tax consumer income is still falling and is now below where it was in 1999 (‘the lost decade’);
In terms of our own industry:

Corporate, transactional and M&A practices are practically dead in the water, and investment banks, as we knew them, no longer exist;
Litigation, in a first, has not risen to the counter-cyclical occasion;
Recruiting is frozen, with many firms candidly, and others stealthily, ‘taking a year off’ hiring law students; and,
In calendar 2009 alone (through August), major law firms have fired 11,451 people, 7,043 of them staff (62 per cent) and 4,408 lawyers (38 per cent) – this doesn’t count unprecedented levels of no-offers, delayed offers and revoked offers.

What does this mean for you? If all law firms performed equally (which means, in this environment, faring equally poorly in terms of down revenue and further-down profits), then it wouldn’t, seriously, mean much. ‘Perform to the mean and you’ll be fine’ – the first rule of pension fund managers.

The problem is law firms don’t all perform to the mean, and this is an environment where averages will be particularly misleading. I predict, come the end of 2009, we’ll be viewing a bimodal distribution of firm performance, with some shockingly hard hit and others cruising serenely on.

This matters because lateral partner mobility matters. People don’t move for a one-time 15 per cent pay bump, but they do move – or start thinking about it – if they’re looking at forfeiting 15 per cent (or more) as far as the eye can see. Difficult conversations are had with clients and even more difficult ones are had with spouses. And eventually the cultural glue of the partnership is subject to the eroding drip-drip-drip of economic solvents.

Perhaps this all calls for invocation of the Boy Scout motto: ‘Be prepared’.

Bruce MacEwen is president of Adam Smith, Esq, LLC (www.adamsmithesq.com). He can be contacted at bruce@adamsmithesq.com