Legal News

Will BigLaw Slash Hiring by 90 Percent?

By Ashby Jones

We’ll admit it: It was kind of exciting covering law-firm layoffs when they started — back in January of last year, when Cadwalader made huge noise by announcing the layoffs of 35 lawyers.

But these days, the layoff of a couple dozen attorneys at one firm, or the slashing of associate salaries at another, registers as news, but sure doesn’t resonate the way it used to. (The same way, sigh, all successive editions of Survivor have in our minds failed to live up to the first, when Richard Hatch took off his clothes and walked away with the grand prize.)

In any event, today, for one reason or another, we’re sick of it. Sick of the doom and gloom, tired of hearing iterations of the same news, tired of wondering where it’s all headed. So, partly on the hope that he’d send us a bolt of good news from the front lines, report signs of the threadiest pulse from a near-lifeless heart, we checked in with legal consultant Peter Zeughauser, who took time out of a roundtable conference with 18 AmLaw 200 managing partners to chat with us.

Hi Peter. What’s the word? Tell us that the layoffs are slowing.

I wish I could. But I think there are going to be more. In fact, I’m fairly certain of it. I think you’re going to see another fairly sizable round come toward the middle-to-end of the third quarter.

Where are they going to hit?

It’s hard to say, but I think more New York firms are going to follow the lead of Milbank Tweed and make significant cutbacks. Milbank didn’t lay off any partners, but I think you’ll see others cut at the partner ranks, both at the equity and non-equity levels.

What gives you this sense? That what the managing partners are saying?

Partly that. But it’s more based on the data I’m seeing on the firms’ financial performance. The data is dismal, and it leads you to certain conclusions. Often consultants draw those conclusions sooner than the firms do, but they’re going to draw the conclusions too.

And what about the end, Peter? Is there light at the end of the tunnel?

It’s not going to be over before the end of the year. I think you’re going to see dramatically reduced offers to summer associates at the end of this summer, and dramatically reduced offers for people to come in as summers in 2010. These cuts could be very dramatic, as much as slashed by 90 percent.

What? 90 percent?

It could be. The firms are still way over capacity. I think at a lot of firms, the work has stabilized, but it's stabilized at a low level and managements still haven’t yet corrected to that level.

When do you think we’ll return to the glory years of, say, 2005 and 2006?

Well, we’re still way ahead of 2006 in terms of compensation. We’re going to have a down year this year, and according to some calculations I’ve read, profits-per-partner across the board could be down as much as 30 percent unless there’s at least a 10 percent reduction in headcount.

Okay. Let’s circle back to partners. What do you see happening with them?

I think you’re going to see underpeforming or poorly performing partners managed out, and I’m talking about both equity and non-equity partners. When I talk about poor performers, I mean I’m referring not just to hours and billable rates, but also their ability to attract clients. I hear from a lot of managing partners the lament that “my partners don’t act like owners.” I think these partners — the partners who “don’t behave like owners” — are going to struggle.

Not a good time to be coming out of law school, is it?

It’s not. But it’s really not a good time to be a 2L. They’re going to get hit the worst, I think.

Grim stuff. You didn’t tell us what we wanted to hear!

Ha. Yeah, I guess not. Sorry about that.

Full post as published by Law Blog - WSJ.com on May 15, 2009 (boomark / email).