Caught Between Focused Boutiques and High-Paying Giants, Mid-Size Firms Struggle for Niches, Associates
Are mid-size law firms becoming an endangered species?
The globalization of the economy, increasing client sophistication, and higher associate salaries are all putting the squeeze on firms in the 50-to-200 attorney range, which don’t have the laser focus of a boutique practice or the range of services of an international giant.
But the managers of many mid-size firms insist that a strongly focused domestic-based practice may be able to meet the needs of its clients as well as, if not better, than a huge international firm.
“I have thought, certainly over the last four or five years, that given the pressures on law firms to be quite economic with clients and to be able to deliver quality legal services in so many different areas of expertise that are required, it was virtually impossible for many mid-size firms to be able to compete in that environment,” said Gary J. Singer, managing partner of the Newport Beach office of O’Melveny & Myers, which has approximately 700 attorneys in offices throughout the United States, Europe, and Asia.
Clients may require expertise in areas such as mergers and acquisitions, financing, benefit plans, tax, and labor. Because a large firm has practice groups devoted to each specialty, and may have seen the same client issues before, the firm doesn’t have to “reinvent the wheel,” Singer said.
But not all clients require such diverse expertise.
“I think one of the key factors in mid-size firms being able to not only survive but thrive, is whether or not the mid-size firm has a focus on the practice areas where that firm can compete and can provide excellent legal services that compare favorably with firms of national and international reputation,” said John P. Erskine, a partner in the Irvine branch of Nossaman, Guthner, Knox & Elliott LLP, which also has offices in Los Angeles, San Francisco, and Sacramento.
With 25 attorneys in Orange County, and 102 attorneys firm-wide, Nossaman’s practice areas include infrastructure (especially transportation); land use, environmental, and real estate law; and government relations.
“They [clients] don’t really care whether you’re small, medium or large if you have the best lawyers for their particular needs,” Erskine said. And although Erskine agrees that an international presence may be necessary for finance or technology practices, for Nossaman’s core practice areas it is irrelevant, since its attorneys need to understand regional, state, and federal regulations, not international laws.
“The mid-size firms that have practice areas that are intrastate or interstate are going to be able to compete better with the multinational, internationally represented firms,” Erskine said.
Many clients favor “local folks” and value the fact that all of management is under one roof, said James Weisz, a partner at the Costa Mesa firm of Rutan & Tucker. Rutan & Tucker employs 122 attorneys and emphasizes litigation, municipal, corporate, real estate, and labor law.
A mid-size firm has an advantage when a client views it as a specialist, not only in a particular practice area, but in a specific community, said Weisz, citing familiarity with local real estate practice as an example. Both large and mid-size firms face challenges when a client has litigation in another state. Even a multinational firm “might not have an office in Boise, Idaho,” Weisz said.
A significant issue for both large and mid-size firms is competition for the best associates. A first-year associate at a mid-size firm can expect a salary in the $100,000-plus range, Erskine said. At a large firm, a first-year associate would probably earn 10% to 20% more, he said.
Large firms have an advantage in attracting the best legal talent because bigger salaries require attorneys to learn to perform at higher levels more quickly and large firms can better devote the resources to training associates at their own, rather than the client’s expense, said O’Melveny’s Singer.
However, Erskine said Nossaman is doing well attracting associates because of its national reputation in core practice areas and the firm’s encouragement of associates to have a life outside the office.
On the other hand, a highly specialized firm may have difficulty finding qualified associates. Don W. Martens, a partner with Newport Beach-based Knobbe, Martens, Olson & Bear LLP said that his firm’s biggest challenge is recruiting new, young attorneys for Knobbe’s intellectual property law practice, which generally requires a background in engineering or physical sciences, as well as a law degree. Knobbe Martens may be considered mid-size at 130 attorneys, but it is the largest intellectual-property firm on the West Coast, Martens said.
Kathlene W. Lowe, managing partner at the Irvine office of Brobeck, Phleger & Harrison LLP, said that large firms generally have an advantage over small and mid-size firms in recruiting associates, not only because of greater starting salaries, but because of the diversity of practice areas and established, yet varied client base.
Lowe also said that over the past decade large firms have gotten larger, increasingly through the merger and acquisition of both boutique and mid-size firms. In addition, large firms are identifying new marketplaces they want to enter.
“And how do they do so? They usually send some of their own people there and they look at bringing on board very quickly experienced lawyers from other firms. And in many cases they will end up acquiring wholesale a small to mid-size firm in that community,” Lowe said.
Rutan & Tucker has rejected merger offers, Weisz said. The firms that he is aware of that have merged have done so as a result of financial issues such as overhead and debt, he said.
Nossaman is not looking to be acquired, but may itself acquire some small, boutique firms, said Erskine. He predicts that mid-size firms will continue to do well.
“We’re bullish on the future,” he said. n
