Disorder in the Court
Five ways that the legal profession in Texas is changing.
There's anxiety in the state bar of Texas these days. The concern isn't that the corporate community will soon outgrow its need for lawyers. Nor is it stock market volatility or the likelihood of another bust. Since the mid-nineties, when the legal profession awoke from its slumber, a robust, diversified, technologically exploding global economy has been spewing new billables like counterfeit hundreds. Business couldn't be better, thank you. The problem is that clients—the franchise of every law firm—aren't so loyal anymore, and the competition for them has become fierce. "It's definitely a client-controlled marketplace now," says Shelby R. Rogers, the chairman of the State Bar Futures Committee. One of the first indications that times were changing, says Bob Werner, the managing partner of Austin's Brown McCarroll and Oaks Hartline, was when longtime clients "started getting calls from other lawyers who wanted to take them to lunch and visit with them about their business. These days a law firm is just another vendor that helps clients get their product to market. They shop around, and if a firm can't add value to their business, they often switch."
It used to be that being good at what you did was good enough. Now all that matters is how many people know it and will pay you for the privilege of demonstrating it, so is anyone surprised that Texas lawyers are feeling a bit jumpy? After all, who knows what tomorrow holds? The borderless economy created by high tech threatens to turn State Bar regulation on its ear now that national and international megafirms with branch offices have global capabilities (as do small firms with the right technology) and now that banks and accounting and consulting firms are teaming up with lawyers to offer multidisciplinary one-stop shopping. Skeptical clients, meanwhile, are directing their in-house lawyers to scrutinize every move made by their outside lawyers and to be on the lookout for someone who can do it better, faster, and cheaper. There's even mutiny within the ranks: Gen X associates are insisting on having lives outside the office, and partners who used to stay at firms for life now jump ship like free agents in pro sports. Perhaps the greatest indignity is the need to throw open one's conference room doors to media specialists, marketing consultants, and communications coaches, who preach thinking out of the box and feeling a client's pain.
You want details? Here are the five main ways the legal profession in Texas has changed in recent years.
1. The invasion of the Silicon Valley suits. What's that dark shadow moving across the skies over Central Texas? It's Southwest Airline's Nerdbird, which shuttles eight times a day between San Jose, California, and Austin, the two hottest hotbeds of high-tech activity. Racking up the frequent-flier miles alongside the dot-comers are a cadre of aggressive lawyers in business-casual clothes who are on the trail of new money. It would be hard to overstate the effect that the branch offices of Silicon Valley carpetbaggers like Brobeck, Phleger, and Harrison and Wilson, Sonsini Goodrich, and Rosati have had on the state's legal landscape. The conventional wisdom is that Texas lawyers were asleep at the wheel when the state's tech scene exploded and have been playing catch-up ever since, while the Northern Californians were immediately in tune with the fast and loose rhythms of the risky but potentially lucrative start-ups. They were willing to discount or defer their fees—sometimes taking an equity interest instead—until the client could get his hands on some cash. And, of course, a lot of those iffy stock-for-fees swaps paid off big-time. Texas firms, on the other hand, have been traditionally skittish about the economics and the ethics of investing in their clients' businesses. Rowland Cook, a corporate-technology attorney with Austin's Jenkens and Gilchrist, says his firm, like many others in Texas, is just now getting aggressive in its pursuit of tech business. Still, he adds, there's always a nagging question: "If a company is so eager to give us equity, do we really want it?"
Stephen Straus, a partner at Austin Ventures, the state's leading venture capital firm, says that risk aversion is precisely the reason many Texas lawyers are now struggling. "With their traditional hourly fees and refusal to discount, they simply had the wrong business model for working with venture-backed start-ups," explains Straus, who works closely with four law firms from Silicon Valley but just one from Texas. "It's a numbers game: A firm builds a client base over five years by being willing to lose money on a lot of new businesses, knowing that only a few will ever pay off—or even pay their bills—much less be a Vignette."
Then there's the issue of salaries. Last December Menlo Park-based Gunderson, Dettmer, Stough, Villeneuve, Franklin, and Hachigian announced that to stanch defections from its ranks to its stock option- waving dot-com clients, it was giving its first-year associates a huge raise, to $125,000 a year, plus a $20,000 bonus. When Brobeck, Phleger likewise raised associate pay in branch offices outside of California, other Silicon Valley firms followed. Then, like dominoes, firms from New York to Texas fell in line—some meeting the Silicon Valley levels, others coming in a bit lower.
Nonetheless, the raises deeply trouble Ferd C. Meyer, Jr., the executive vice president and general counsel for Central and South West Corporation in Dallas, who says he's sure he knows whose wallet they'll be coming out of. "Lawyers don't seem to be aware of the pressures on Old Economy businesses to keep costs flat," he complains. "I frankly don't think we'll have much interest in absorbing these salary increases for associates, who don't bring that much to the table anyway."
2. Cheaper fees, please. In an effort to contain fees but still maintain quality, companies frequently audit their legal bills and distribute guidelines that put the kibosh on the Skaddenomics tricks (named for the New York white-shoe firm Skadden, Arps, Slate, Meagher, and Flom) of turning everything from the office copy and fax machines to the coffee and pastries served at client meetings into profit centers. First-class travel and fancy hotels are also no-no's. "They say that lawyers travel in twos and threes," says Melba Whatley, who manages a small investment company in Austin. "But not on my bill. I make it very clear: one attorney per meeting."
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