Tag Archives: associate layoffs

THE TRUE COST OF THE WEIL LAYOFFS

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The Wall Street Journal describes the layoffs of 60 lawyers and 110 staff as “the starkest sign yet that the legal industry continues to struggle after the recession.” But who, exactly, is struggling?

Not the owners of the business. The overall average profits for equity partners in the Am Law 100 reached record levels in 2012. Even during the darkest days of the Great Recession in 2008, PPP for that group remained comfortably above $1.2 million before resuming the climb toward almost $1.5 million last year.

Not equity partners at Weil, Gotshal & Manges, who earned a reported average PPP of $2.2 million in 2012, according the the American Lawyer.

So Who Suffers?

One group of victims consists of 60 young people who had done everything right until everything went wrong for them on June 24. They’re intelligent, ambitious, and hard-working. Exemplary performance in high school earned them places in good colleges where they graduated at the top of their classes. They attended excellent law schools and excelled, even as the competition got tougher.

All of those accomplishments landed them great jobs. In the midst of a dismal legal job market, they went to work at one of the nation’s most prestigious law firms. Making more than $160,000 a year, many believed that soon they might throw off the yoke of six-figure student loan debt.

Now, they’re unemployed.

Another group of victims consists of 110 staffers who also got the boot. According to the NY Times, approximately half of them were secretaries. These behind-the-scenes workers often go unappreciated by lawyers who mistakenly take all of the credit for their own success.

A third group is a reported 10 percent of partners, many of whom who will suffer compensation cuts of “hundreds of thousands of dollars,” according to the NY Times.

“It’s All About the Future”

Announcing the layoffs, executive partner Barry Wolf described the move as “about the future of the firm and strategically positioning us for the next five years.” But layoffs aren’t about weeding out associates who don’t measure up to the rigorous quality standards necessary for equity partnerships. They’re about matching supply (of associates) with demand (for legal work) according to undisclosed criteria.

In fact, it seems a bit strange to talk about a firm positioning itself for the future while simultaneously dropping a morale bomb on its associates (and some partners) during the height of the summer program. The best and the brightest young prospects are working in big firms where luring that talent into the firms is a top priority. Bad public relations from a high-profile layoff can have a chilling effect that outlasts a single news cycle.

And what is that future going to look like? Will Weil be hiring any new associates over the next 12 months? Or 18 months? Or even 24 months? If so, I know 60 candidates with big firm experience (at Weil) who may be interested.

There is no shortage of current students who will continue to seek high-paying jobs at Weil, Gotshal & Manges. But what if negative publicity dissuades those few with the rare qualities necessary to become superstar partners from even signing up for on-campus interviews? By its very nature, such longer-run damage is impossible to know, much less measure.

Big Law’s Cheerleaders Applaud the Move

Law firm management consultants applauded Weil’s move. That’s not surprising because they have been central players in the profession’s transformation to just another business. They consistently endorse businesslike steps to maximize short-term profits. They expect other firms to follow Weil’s lead, and perhaps some will. Law firm consultant Peter Zeughauser said, “Weil is a bellwether firm and this will be a real wake up call.”

The etymology of bellwether may be relevant. In the mid-15th century, a bell was hung on a wether, a castrated ram that led a domesticated flock. In that way, the noise from the bellwether made it possible to hear the flock coming before anyone saw it.

In an informal Am Law survey, other firm leaders have distanced themselves from Weil. Before following that lead ram, perhaps they’re giving some thought to where it is going.

DEWEY’S DILEMMA

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Dewey & LeBoeuf has talented lawyers, great clients, and 2011 average equity partner profits exceeding $1.7 million. So what required a March 2 firmwide memo from Chairman Steven H. Davis in response to “press stories on U.S. legal blogs”? If the firm paid some media relations consultant to advise him on the missive, it should demand a refund.

Lessons about communicating

Davis says that he planned to outline cost-cutting and other measures when he “knew exactly how they would impact individual offices and departments, but given the press attention,” he advanced his timetable. There’s the first lesson to learn from his approach: When management makes decisions, it shouldn’t attribute the timing of announcements to outside media influences, even if they are a factor.

The second lesson is to avoid firmwide memoranda on sensitive issues. That’s not because transparency is bad (although sometimes less is more). Rather, it’s because difficult news should be communicated in a way that best serves the institution, its people, and its clients.

In the age of global mega-firms, it’s difficult to bring all personnel — or even all partners — together for a candid conversation about what’s happening and why. But there’s no better use for all of that fancy videoconferencing technology than promoting the right narrative, rallying the troops, and instructing partners to inform clients and staff directly about internal firm situations that generate press.

Mixed messages

The substance of the memo presents other issues. Davis starts with the “many successes last year” and “improved financial performance” in 2011 that continued during the first two months of 2012. The problem, he suggests, is a “significant increase in our cost base.” Taking “proactive steps to align the firm’s resources with anticipated demand,” he notes that “[s]ome recent departures have been consistent with the firm’s strategic planning for 2012, and we expect some additional partners to leave.”

That leads to a third lesson about these situations. If a firm is pushing some partners out, don’t make a big deal about it while also touting the firm’s improved financial performance. As they’re losing their jobs, let subpar performers who were once valued firm assets keep their dignity. In fact, public characterizations invite scrutiny. For example, attrition and pruning are one thing, but did the firm’s strategic plan really contemplate losing current and former practice group leaders?

Then comes the punch line: the firm will reduce another five percent of attorneys and six percent of staff. Perhaps, as Davis suggests, the firm does “very much regret the impact” on affected colleagues, but with average equity partner earnings well above the million dollar mark, describing layoffs of 50 to 60 lawyers as “necessary to ensure the firm’s competitiveness” seems disingenuous to most observers.

Misleading metric?

Underlying all of this could be the fact that a key firm metric — average equity partner profits — is misleading. Perhaps, like many big firm trends, the real story is the internal gap between the highest and lowest equity partners.

According to the February issue of The American Lawyer, “Davis says that the firm resisted making mass lateral hires for three years after it was created in October 2007 through the merger of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, choosing to focus on integration first. ‘Now, we’re moving into a new part of the cycle….'”

One new part of the cycle is lateral partner hiring, for which Dewey was among the top ten firms in 2011. Some of its newest partners were probably expensive, such as former chairs of their previous firms’ practice areas. In 2009, Davis said that the firm rewarded superior performance and denied giving compensation guarantees to rainmakers. If, as recent reports suggest, that policy changed, guarantees could present risks. When a lateral bubble pops, it can inflict significant collateral damage.

Even so, Dewey remains a great firm. On the strength of its ranking surge from 33 to 14 in the Midlevel Associate Satisfaction survey, together with its numerous awards for diversity and pro bono initatives, the firm made the 2011 Am Law “A-list.” That requires decent people creating a culture worth preserving. Hopefully, “moving to the new part of the cycle” hasn’t taken the firm in an errant direction — or, alternatively, any detour is temporary.