Wednesday, June 26, 2013

Weil Layoffs: More Firms to Follow?: Point - Counterpoint from Adam Smith, Esq. and American Lawyer

The web is awash with reaction to the dramatic news from Weil, Gotshal & Manges which includes not only staff and associate layoffs, but also dramatic cuts in partner compensation for selected partners. Is this a "one off" or the beginning of a trend? The pundits  and the partners disagree.

Will More Firms Follow? YES (Adam Smith Esq.)
Bruce McEwen is not surprised, but practically apologetic that he is responding to "breaking news."  In his blog post The Weil Layoffs. , he points to the fact that these law firm layoffs were so dramatic that they were reported above the fold in the Wall Street Journal Law Firm Slowdown Fuels Cuts at Weil Gotshal. and in the New York Times Dealbook, .Mass Layoffs at Top Flight Law Firm .  It was reported that 110 staff and 60 associates were laid off. MacEwen estimates that  7% of associates got pink slips and 10% of partners had their compensation cut. MacEwen estimates that there  may be cuts from $200,000-500,000 per affected partner.

Weil's Executive Partner Barry Wolf  in his announcement  indicated that the decisions came in reaction to secular, not cyclical, developments in the market for high-end legal services. “We believe that this not just a cycle but that the supply-demand balance is out of whack across the industry. If we thought this was a cycle and our business was going to pick up meaningfully next year, we would not be doing this.”

MacEwen 's Taxonomy of Overcapacity

MacEwen definitely believes that other firms will follow suit,but perhaps not immediately. He pokes fun at the law firm management trope of managing with the "who else has done it?" strategy.  

Law firms which have too many lawyers  fall into three rough categories:

•They could use some trimming but there’s been no sense of true urgency;

•They really need to do something like this but have been paralyzed by indecision and existential worries over what it would mean for their “culture;”

•They need someone to toss them a permissive lifeline and Mr. Wolf has just done them the favor.

But the bottom line for MacEwen is that there will be more firms following Weil's lead.


Will More Firms Follow? NO ( Amlaw Daily)

AmLaw Daily is offering hope that Weil may be an isolated event. Weil Peers See Layoffs as an Isolated Event..  Julie Triedman reports that she contacted a number of Weil's peer firms. Most partners who talked to ALM indicated that they were not planning any lawyer or staff layoffs. They also report that  "several firms tried to distance themselves from any potential layoffs in conversations with The Am Law Daily, pointing out that Weil's situation may be firm specific."

However the ALM story goes on to cite the Citibank Private Firm Survey and noted that law firms have on average excess lawyer capacity of 8-8.5 % over what they had in 2007. The math computes to lawyers at large firms working nearly 200 hours less per year than they were in 2007 across the elite firms.

One law firm leader who was interviewed indicated that Weil may be caught short if work picks up. But several partners indicated that Weil's situation is unique because of their heavy focus on bankruptcy work. As large bankruptcies are winding down, and the economy is improving Weil's major practice group has found itself  in a swoon. Some  firms suggested that they were weathering a slowdown in corporate and bankruptcy work better than Weil due to their greater geographic or practice diversity.Almost all firm leaders interviewed for the AmLaw story said they disagreed that the Weil move will trigger other such announcements.

Was Weil Insulated or Overconfident?

Was Weil riding  a bankruptcy bubble that insulated them from the worst of the recession that hammered most of the Amlaw 100 firms  5 years ago? Had their secure identity as an elite firm blinded them to the seismic changes in General Counsel attitudes toward procuring legal services?

There was an interesting quote from a Weil associate in the Wall Street Journal article. The associate suggested that Weil priced itself out of the Houston market because of its reputation for refusing to cut rates, with this colorful quote:  "This white-shoe insistence on not getting dirty has left us dinosaured out of the situation." 

 Weil Wasn't the Only Layoff Story This Week   It was reported that 17 partners are leaving Patton Boggs and Jones Day announced layoffs of 60 IT staff members.  The thing that is clear is that law firms are continuing to recalibrate both attorney and staff levels. The  economic earthquake of 2008 may have passed but the aftershocks will live on...being ready for upheaval and displacement may just be part of "the new normal."

1 comment:

  1. Personally I do not hope that decisive action is an "isolated incident". Good firms with solid leadership will need to make tough decisions for their organizations to prosper. As a department leader myself it is on me to proactively align my groups functions with the vision of the firm and future of our industry, not to bury my head in the sand and hope the reaper doesn't come calling. Inaction is what got us here, action may just lead us out.

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