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Monday, January 26, 2009

Law - "Recession Batters Law Firms, Triggering Layoffs, Closings"

This is the headline to this lengthy story today in the WSJ, reported by Nathan Koppel. Some quotes:

After upending a succession of U.S. industries, the recession has arrived for U.S. law firms, which have long seen themselves as partially insulated from economic downturns. In December, Thelen LLP, another large San Francisco firm, also shut down for good, citing recessionary pressures. Later that month, Thacher Proffitt & Wood LLP, a 160-year-old New York firm, announced that it was closing. Dreier LLP of New York is dissolving after its founder was arrested for fraud.

Pay cuts and layoffs are becoming commonplace. This month, Clifford Chance laid off more than 70 lawyers in London; Cooley Godward Kronish LLP fired 50 lawyers and 60 other staffers; and Akin Gump Strauss Hauer & Feld LLP let go of 65 staff members across the U.S.

In November, New York legal giant Cravath, Swaine & Moore LLP announced it was reducing year-end bonuses for junior lawyers, and that it wouldn't raise its billing rates in 2009. Latham LLP, one of the nation's highest-grossing firms, said in December that associates would not get raises in 2009 -- a move followed by many other firms.

"More firms are in a fragile condition than I've ever seen," says William Brennan, a law-firm consultant with Altman Weil Inc. and formerly chief financial officer at two large Philadelphia firms.

Profits, on average, were down 8% to 12% across the industry last year, after 15 years of consistent profit growth, says Peter Haugh, managing director for the Legal Specialty Group of Wachovia Wealth Management.

Throughout the industry, business has dropped off in such key practice areas as mergers, public offerings, and corporate finance. Litigation, often counted on to carry firms through downturns, has become less profitable as clients increasingly settle big cases, forgo lawsuits altogether, or pressure firms to discount their fees, lawyers say. Some practice areas, such as bankruptcy, however, are robust.

The story makes this point:
Their main assets are their senior lawyers. Job hopping used to be relatively rare among such lawyers. But lawyers with big books of business now commonly shop themselves to more profitable firms that can offer larger compensation packages.

"Law firms are not the kind of companies that do well in adversity," says Jonathan Landers, a partner at Milberg LLP, who has represented banks in law-firm dissolutions. "Their best assets are their most mobile assets. When bad things happen, people get nervous and they start to look around."

The economic downturn has prompted lawyers to jump to firms perceived to be more financially stable. If enough partners head for the exit, a firm can crater in a hurry.

"The marketplace is so intensively competitive that when firms encounter financial difficulty, the best and brightest lawyers immediately say, 'I don't want to take a risk with my clients and my compensation,' and they jump quickly to a less risky platform," says Mr. Brennan, the consultant. "Within weeks a firm can go from having financial difficulty to having a run on the bank."

Posted by Marcia Oddi on January 26, 2009 06:41 AM
Posted to General Law Related