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Layoffs: What Partners Think

Friday, February 6, 2009 10:00 AM - By Elie Mystal

pyramid scheme capstone small.jpgLeigh Jones of the National Law Journal was able to get partners to open up about the reason behind Biglaw layoffs. Not surprisingly, it’s all about the Benjamins:

Law firm leaders and industry consultants say a firm cuts costs by an average of $250,000 for each attorney let go. For each legal assistant or other staffer laid off, a law firm saves about $100,000.

According to the NLJ’s figures, rent and salary accounts for 85% of a firm’s operating budget:

“There’s only so much you can save by pulling the tea and cookies out of the conference room,” said the chairman of a major U.S. law firm that has laid off attorneys during the economic downturn. In order to speak candidly about his firm’s finances, he requested anonymity for this story. “The rent you’re stuck with, so you’re left with this huge megillah of compensation,” he said.

We have explored the concept of forced attrition in this space before. According to at least one partner, that is precisely what is happening.

Details after the jump.

The partner that the NLJ spoke with was able to find some “comfort” from all of the layoffs:

Because associates are clinging to their positions as the economy declines, law firms are finding it necessary to replicate the attrition they’ve come to expect, he explained. “We have an entire machine built around 25% attrition,” the firm chairman said. “We have to engineer that just to stand still. The only comfort one can find in this is that you get the attrition you want.”

Whatever you can save by cutting junior people, consultants are telling firms that firing senior attorneys should also be considered when cutting expenses:

“If you think about saving money, culling associates is really not the big game. It’s the easy game,” he said. [Law firm consultant Friedrich Blase] added that, under his scenario, a mere 3% savings requires a firm to lay off 10% of its associates.

The tougher choice is to make cuts at the nonequity and senior counsel levels, he said. Not only are those attorneys typically very expensive for law firms during slow times, but some of those lawyers, out of desperation, hoard work from the attorneys below them, he said.

It’s all pretty sad, and all pretty true.

Just how much do law firm layoffs save? A lot. [National Law Journal]

Earlier: In This Market: Are You Getting Laid Off or Fired? A Kaye Scholer Case Study

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