The stock market has gone up and down, but for decades at Harvard Law School, one thing has remained the same: job security.

“As a Harvard student, you feel entitled to get a job, and you ignore these dire reports on CNN,” one student told the Crimson in February after the Harvard Law School’s peak recruiting season had passed her by and left her without a job. “You think that things will work out like every other year.”

During the current recession corporate law firms—like a majority of other industries—have pared down their operations after transactional assignments in investment banking and trading evaporated in the heat of the downturn.

Top performers from the nation’s most elite law school are now faced with slashed salaries, lay-offs and reduced hiring. The pre-crash ideal of fast-cash has been swept away by the brusque hand of the last two years of financial uncertainty.

In economic downturns, law firms have come to expect litigation activity to increase even while transactions decrease in a recession. But the magnitude of this recession—the worst since the Great Depression—has nullified this conventional wisdom, leaving firms scrambling to cope.

The fall-out has accelerated a reform process within firms to improve the way that they hire, recruit, and operate.

This year, Harvard Law School has seen a 20 percent reduction in the number of firms participating in its recruitment process, according to Mark A. Weber, assistant dean for career services at the Law School. Some members of the class of 2009 received deferred start-dates as firms struggled to keep the hiring commitments they made two years earlier. And starting salaries for the largest firms have dropped from around $160,000 to $140,000.

Administrators and experts at the Law School have hinted at the possibility of pushing back the start date of the fall recruiting season. But starting this spring, the Law School will host a second recruitment period for “firms whose hiring outlooks have changed,” in anticipation of an economic recovery.

‘OVERHANG’

Jason C. Murray, a second-year student at the Law School flew from Cambridge to Washington, DC two weeks ago for what is commonly referred to as “fly out week,” an intense week long, class-free period of job interviews and elbow rubbing with potential employers.

Murray is one of the few still falling snugly into the mold that has characterized the recruiting process for decades earlier. Just one semester into his first year, Murray entered into the competitive process of applying and interviewing for summer internships.

The next fall, the job hunt began in earnest. Murray landed three interviews in Washington and three summer job offers that would likely result in a full time offer.

But Murray’s success is emblematic of a fundamental problem with this recruitment system, some critics say. The two-year lag between when firms extend job offers and when employees begin their first year forces firms to predict associate demand far in advance of the start date and leads to inaccurate predictions of hiring needs.

According to Weber, the backlog of entry-level associates or “overhang” is negatively impacting firm demand for associates in this recruiting cycle.

After the financial crisis pummelled investment banks and the fountain of transactional work dried up, law firms were forced to keep the commitments they made to new hires two years earlier. The result: a spate of deferred start dates that began with the class of 2009 and may continue with the class of 2010.

The Law School began taking steps to cope with the downturn last year when they announced that the 2009 fall recruitment schedule would be moved up by a month. Also this year, the school will mediate a second recruiting session in the spring.

Students say the Law School’s Office of Career Services has generally been helpful in guiding students through a tough job market—anything from presenting students with possible career options to offering fashion advice on interview days.

But several students criticized OCS for issuing newsletters packed with “doom and gloom” predictions about the job market.

“It was almost like fearmongering,” said Julia K. Seider, a second year student at the Law School.

Law Professor Asish Nanda said he is leading a movement to reform the recruiting process that would entail transitioning law schools to a system similar to the method medical schools use to match students with residencies.

Under such a system, firms would interview all applicants in the spring of their second year. Firms would then list preferences for applicants, students would list their firm preferences, and a matching program would pair students with firms.

But some students say that the getting an early start to the recruitment process gives them early exposure to firms and in many cases guarantees that they will land a high-paying job, even as they watch their student loans pile up.

“The interview process is an opportunity to learn about the firms,” Murray said. “It would be hard to get a firm idea of what the firm is like under a different system.”

But law firms today publicly defend the extended recruiting system as an important component of acclimating new hires to life at a firm.

“I think one of the things that works well is that it gives students a real opportunity to come spend some time at the firm and get a very real sense of what it’s like to work at the firm,” said Michael J. Summersgill, chair of the hiring committee for Wilmer Hale’s Boston office and a graduate of Harvard Law School. “What other industry has that opportunity to work? I think it’s a unique approach, and I think that’s a good thing.”

A STRUCTURAL CHANGE?

For experts on the legal profession like Nanda and Law School Professor David B. Wilkins ’77, there has not been a better time in the last 30 years for structural reforms to take shape in the industry.

“I’m in the Rahm Emanuel camp,” Wilkins said. “Never let a crisis go to waste.”

Now that the boom years are over for Wall St. and the law firms it patronized, Nanda said that firms will need to start outsourcing many of their basic legal services and improve the quality and performance of their associates.

“We teach students how to think like lawyers and firms teach them how to be lawyers on the client’s dime,” Wilkins said.

That system simply is not tenable in a tighter legal market, Nanda said.

In the past, associates have climbed the pay-scale in lock-step with their recruiting class at set intervals. Associates are guaranteed job advancement and firms faced steadily escalating costs in the absence of a system that incentivizes high performance. According to Wilkins, a competency-based system would force associates to meet bench-marks before gaining a promotion.

Reforming this system poses a typical adversarial cooperation problem for firms who fear that other firms might cheat the system by keeping the old methods in place and attracting the best recruits with a cushy compensation system. But Wilkins said that the financial crisis has placed sufficient pressure on the legal industry to make cooperative reform possible.

“Some types of financial transactional work in structured financial products which required high leverages—that work has gone away and for a long period of time,” said Nanda.

Much of that transactional work had been the responsibility of summer associates and entry level associates. But now firms are reducing the overall number of summer associates and are placing greater demands on the few that they do hire, said Brian T. Aune, a third year student who has spent the last two summers working at Sheppard Mullin Richter & Hampton.

If the financial sector returns to its previous size, law firms may recover some of the positions lost to a decrease in transactional work, but that is unlikely to occur in the near future, Nanda said.

Nanda and Wilkins both say that associates can expect that much of their bread and butter work will be outsourced in the future, potentially decreasing demand for associates.

“There are alternate of forms of delivery for that type of work,” Nanda said. “Discovery and other large volume work will likely go to India and the Philippines.”

According to Wilkins, the bottom line is this: associates can expect to see lower entry-level salaries.

“Some of my students might not appreciate this, but I think it’s a good thing,” he said with a laugh.

—Staff writer Elias J. Groll can be reached at egroll@fas.harvard.edu.