March 30, 2009

Why Just Law?

Last week, I wrote a couple of posts (here and here) about law firms deferring starts dates for new hires, and encouraging them (along with recently laid-off employees, in some cases) to take on pro bono jobs, with partial salaries from the law firms. I've been looking for other industries that are doing something similar - that is, recognizing assets that are under-utilized thanks to the business slow-down and loaning them out to nonprofits. Surprisingly, I haven't found much.

The lack of a pro bono or in-kind giving spike in industries other than law made me think about what characteristics would make an industry likely to increase such giving in the face of a recession. For instance, it makes sense to me that the legal firm is increasing pro bono activity for the following reasons:

  • According to a recent CNN article, deferring start dates can save law firms $100,000 per associate, even when the firms are still paying a partial salary. I imagine that this comes not just from the high salaries that are common in the industry (according to the same CNN article, the median starting salary for lawyers in private practice was $108,500 in 2007), but also from the high cost of training new hires, along with benefits, overhead costs, year-end bonuses, etc.
  • All law firms have to sell is their employees' expertise. As such, they are a critical resource - the firms can't allow this recession to have an negative impact their access to talent, or they won't be able to scale back up after it ends.
  • By putting new hires to work in a pro bono capacity, these inexperienced attorneys are getting valuable work experience, reducing the training cost to the firm once they come on board.
  • The legal industry has an infrastructure in place to handle pro bono work - many firms have pro bono coordinators, many lawyers have pro bono experience, and many nonprofits have experience putting pro bono lawyers to work.

So what are principles can we generalize to other industries? I believe that industries are more likely to donate recession-induced excess capacity if they meet some or all of the following criteria:

  • The resource is costly to the firm - if the firm can get even part of the cost off their books, or if it can extract some value out of the resource, it is motivated to do so.
  • The resource is valuable to the firm - the firm will absolutely need this resource after the recession. If the firm disposes of the resource, it will take some time to get it back after the recession ends (inhibiting the firm's ability to scale back up); there may even be a risk that the firm won't be able to recapture the resource.
  • If the firm donates this excess capacity to a nonprofit, it will extract more value from the resource than letting it sit idle. The process of being loaned out may actually add value to the resource (e.g., in the case of lawyers doing pro bono work), or the donation may have some other positive benefit to the firm (e.g., improved reputation).
  • The firm knows how to lend out the resource to a social sector organization; conversely, nonprofits know how to use this resource.

What other industries fit some or all of these criteria, and have seen their business slow down in the face of the recession, thus leaving their resources underutilized?

It seems to me that finance firms, with respect to their employees, are facing much the same challenges as law firms. Their employees are highly paid and highly skilled, and the firms' essential product is their employees' skill - they really can't afford to lose these people, as they'll be critical to the firms' success when the economy recovers. Putting these employees to work in a pro bono capacity should indeed add value to the employees, as a training exercise, as there are many nonprofits dedicated to issues that are closely related to the work these employees do for banks and other finance companies. Because many firms have a history of donating time and money to nonprofits that work on financial literacy, the infrastructure for pro bono work is more or less in place (if not as well developed as in law). Because this recession is creating increased demand for nonprofits in this field, they should certainly be able to use this donated resource.

So are these companies following the legal industry's lead? JPMorgan put
Bear Stearns summer interns to work in nonprofits last summer, but other than that, I haven't seen significant parallels. My gut reaction is that financial firms are in such significant trouble, that they're beyond these kinds of programs - they're saving the people they can to do the work they have left, but they just have to cut costs wherever they can. As a result, they may face some problems when they scale back up, but they don't have any alternatives. Or is there some other reason that the finance industry isn't engaging heavily with pro bono programs?

Consulting is a near-perfect match for law - the hiring process is similar; the types of people hired are very similar; consulting firms also have a pro bono history; their skills are similarly valuable to non-profits; and the nonprofits offer valuable experience for consultants. Furthermore, consulting firms, too, are pushing back start dates. That said, from what I've heard from my many friends going to big consulting firms next year, start dates aren't being pushed back later than January or February; compared to the full year some law firms are delaying their offers, this seems less likely to lead to attrition. (I'd also add that it seems consulting firms have always been pretty flexible about letting employees defer offers to take on short-term positions with nonprofits, even if they don't seem to be creating formal, paid fellowships like the law firms are currently doing.)

Moving beyond skilled employees to other types of underutilized assets, the travel industry comes to mind. Hotels, in particular, might have an interesting opportunity to increase in-kind donations. Much of a hotels' costs are fixed - no matter how empty the hotel is, the company still has to pay for the cost of the building itself, along with desk staff, restaurant staff, utilities, etc. Certainly, there is room to scale these costs down if the company expects occupancy rates to decline, but a big portion of these costs are fixed. As such, I expect that the cost of donating rooms - to Make-A-Wish, for instance, or even to nonprofit employees traveling for business purposes - is relatively low; these additional occupants are only incurring the additional fixed costs (e.g., utilities in the room, additional housekeeping, additional wear-and-tear on the room). While the benefit to the company isn't as clear-cut as better-trained employees, there should definitely be a reputational advantage, if the company communicates its donations well.

Airlines are somewhat similar - the vast majority of costs are fixed (the plane, most of the fuel), so putting a sick kid on the plane, off to visit a specialist, has very low additional cost to the airline. As with hotels, the recession is decreasing demand and leaving seats empty. Unlike hotels, airlines can reduce the number of flights they run, so they can somewhat reduce their excess capacity; however, to the extent that they aren't able to eliminate it entirely, there may be an opportunity to donates these extra seats to nonprofits.

What other industries have seen their business slow down as a result of the recession, leading to excess capacity? Of these, which meet the criteria laid out above, suggesting they may be good candidates for increased pro bono activity or in-kind giving? Or do you have other ideas about what makes an industry a good candidate for such programs? What stands in the way of getting such programs into place?


1 comment:

  1. Architects, construction managers and construction workers have also been greatly affected by the economic downturn and could potentially be used for pro-bono work. The problem with the construction side, however, is that the work would still require significant investment by the non-profit in the form of payment on materials. I'm not sure why architectural firms haven't done more of this in trying to keep talent busy, although many of the firms I have experience with were doing plenty of pro-bono work even before the recession hit. The other side is that both construction and architecture graduates may not have the experience needed to do consulting right away (although it could still be helpful!). I'm impressed that law firms have taken to this idea, I think many industries aren't doing this because it is an out of the box idea for them.