Howrey: Staff Layoffs and Capital Contributions
In November, Howrey picked up 40 lawyers from Thelen, including former Thelen chairman Stephen O’Neal. Today, tipsters report that non-equity partners at Howrey are being asked to make capital contributions to the firm:
At Howrey the non-equity partners have been told they must make a … 10% capital contribution to the firm. This is a suggested minimum, the partners are being encouraged to contribute more.
We mentioned yesterday that firms that picked up Thelen lawyers have had a couple of bumps.
A Howrey spokesperson clarified our tipster’s report. But non-equity partners will be required to make their contribution by June 1st. A Howrey spokesperson characterized the new program as follows:
However, beginning June 1, 2009, Non-Equity partners will be asked to contribute capital, at a percentage far less than equity partners. Additionally, all partners, Equity and Non-Equity, will now able to contribute voluntary capital and several have already agreed to do so. All these are signs of their commitment and dedication to the Firm and its plans for growth.
This is reminiscent of the DLA Piper situation. Back in November, DLA asked its non-equity partners to kick in a capital contribution, in exchange for turning the contributing non-equity partners into equity partners. But it does look like Howrey is maintaining the distinction between non-equity and equity partners.
While Howrey contemplates the structure of its partnership, the structure of its staff is being downsized. Additional details after the jump.
Above the Law has been able to confirm that 25 legal secretaries were let go from Howrey. Here’s part of Wednesday’s firm-wide internal memo:
Today’s actions primarily impacted secretarial support, with a total of 25 positions being eliminated. All of the affected employees will or have received severance packages providing income and benefits (from medical to outplacement) that are fair and more than consistent with the prevailing standards in todays legal industry.
Sources report that the cuts are made to bring Howrey to a four-to-one attorney/staff ratio.
Yesterday, Howrey’s COO and CFO had a meeting with all the staff that survived the cuts. Firm leadership announced at the meeting that Howrey will be staggering the start dates of incoming first-year associates, bringing on a small summer class for 2009, and focusing on lateral hires more than “fresh associates.”
We’ll keep you posted.
Read the full internal memo below.
Earlier: Howrey and Reed Smith: Latest Beneficiaries of Thelen’s Shutdown
DLA Piper Changes Partnership Structure
HOWREY — MEMORANDUM — STAFF LAYOFFS
This is to inform you of restructuring actions that were taken today in nearly all of the US offices, excluding East Palo Alto and New York City. These actions are part of a comprehensive program launched in July 2007 to restructure firm operations and reorganize the support staff to more effectively align our resources with our business operations. We will continue to do everything necessary to eliminate excess cost and achieve the purchaser benefits and value due to a global firm.
Todays actions primarily impacted secretarial support, with a total of 25 positions being eliminated. All of the affected employees will or have received severance packages providing income and benefits (from medical to outplacement) that are fair and more than consistent with the prevailing standards in todays legal industry.
Tomorrow, April 16, 2009, Patrick Hennessy, CFO, and Ralph Allen, COO, will be holding a video-teleconference (VTC) with all US staff to review this and prior restructuring actions. As you may know, throughout the last 18 months, we have made significant strides toward a firm wide reorganization (IT, Global Procurement and Shared Services, Marketing, Human Resources, Capital Litigation Support, CAPAnalysis, and now, Secretarial) to improve the operating efficiencies of the firm.
We also want to address questions and concerns of the staff. You are welcome to
join that VTC.
It is possible that this action will appear in the legal news tomorrow or over the next week, and it is likely that your secretary and other members of the support staff may ask you about it. We wanted you to be aware of the facts surrounding this action. Chris Till is available to respond to any press inquiries. Please feel free also to contact either of us if you have any questions.
Thank you for your attention.
Regards,
Patrick Hennessy, CFO
Ralph Allen, COO
(122) 
Comments
I could see Latham doing this to first-year associates in exchange for the privilege of not being laid off immediately.
I knew it. I knew it. I knew it.
Suck my balls, Howrey.
Venable
Howery is absolute garbage. It needs to die.
Susskind predicts that the traditional law firm model of bespoke services, customised for client needs, will be unbundled and broken down into a series of standardised products. As these products are teased out of the traditional mould, they will be offshored, outsourced or multi-sourced as appropriate, echoing the manufacturing process behind consumer goods. This proliferation of services is set to intensify the global sourcing market, he says.
In Susskind's view, the end of the economic crisis will not signal a return to traditional norms. 'When the storm lifts,' he told the Techshow, 'the terrain is going to look wildly different.
http://www.cpaglobal.com/ip-review-online/3307/legal_services_fragmentation_speeding_up
What is a Howrey?
If there is no other evidence that the "big firm" model is unsustainable, this is it. Law firms sell services that may or may not be in demand...they don't have inventory, they don't produce any re-saleable goods, they have no guaranty that they can generate income on a monthly, let alone yearly basis.
Yet they have HUGE infrastrucure costs...rent, staff (legal and non-legal), office equipment, etc.
Its over.
This is Howrey do it!
10% of what?
1 - Why Latham? How is Latham relevant to this post?
I'm confused. If you are making contributions to a firm's capital, how are you not equitized? What would you call your interest in the firm?
Trying to read this post made my brain hurt.
10- You'd call it a capital loss.
Suck it, O'Neal, from former Thelen and current Orrick partner the Glass Cock.
The ship be sinking...
Cue pompous, idiotic, "sky is falling" post from Partner Emeritus. Suck it in advance, PE!
10: Great question. Knowing nothing else, I'd call it a refund of salary with post-tax dollars.
I had the same thought as 10. Contributing capital is mandatory, but you still are a purely at-will employee with no right to a share of profits... Corporations frequently require their execs to own stock; but Howrey is a partnership. So what are non-equity partners actually buying? Seems to just be a mandatory loan to the firm. Does Howrey at least guarantee some rate of return when a non-equity partner exits and his or her stake is sold back to the firm? Any right to a specific share of firm profits?
I will echo 10's confusion. Someone explain how a "partner" contributing "capital" to his partnership can be described as "non-equity."
Glass Cock FTW, as per usual
Former partner here: Capital calls are not good news for any law firm. It usually means that the firm can't borrow money, and that the banks are demanding higher capital levels in order to lend money to the firm. It's not the death of a firm, but it certainly is a serious blow.
that's crazy! At DLA they at least became capital partners, and for many people it was seen as a benefit to eliminate the equity/non-equity distinction.
A "Howrey" used in a sentence:
"Howrey doing, Biglaw?"
"Not good Lois, not good."
Yes, this makes no sense. 10% of what? How can you make a 10% capital contribution if you don't own any equity in the first place.
Yes, this makes no sense. 10% of what? How can you make a 10% capital contribution if you don't own any equity in the first place.
Yes, this makes no sense. 10% of what? How can you make a 10% capital contribution if you don't own any equity in the first place.
10 & 17
Non-equity partners can be required to contribute capital because under the partnership laws of certain states, profits and losses do not have to be shared equally among partners. That is, you can be a "partner" in a firm, be liable for the firm's debt--or be required to make a capital contribution--but not be entitled to a share of the profits. Hence what is referred to as a non-equity partner. Sounds like a sweet deal huh? A non-equity partner is a nice name for an associate who the firm can force to cough up money.
If I was non-equity and my firm asked me for a financial payment to show commitment, I'd ask for equity first. The scheme appears to be intended to encourage a dimunition in Howrey's non-equity ranks via two paths: (i) identification of non-equity partners who are unwilling (or unable) to make a contribution; and (ii) effective "pay to stay" program (e.g., reduction in contracted salary).
Former partner here: It's also an easy way to get ride of income partners, without having to fire them. It won't be hard for an income partner to figure out whether they'll make it as an equity partner, as in make a decent income. If they can't cut it by killing more than they eat, then they would leave rather than investing the money. Anyway you look at it, it's bad news all around for the firm and anyone who thinks they have a long-term future at the firm.
Is this capital contribution supposed to be a gift? A loan? If they are making an equity investment in the firm, how can they remain non-equity partners? If the big partners want to maintain a distinction to lord over the little partners, it can’t be an equity/non-equity distinction any more.
10, 16 and 22 three times:
This makes no sense. They are either "partners" or they are not. If they are not true "partners" and are just glorified associates and as such at will employees of the firm they would be fools to "contribute" 10% of their annual salary to the firm for the privilege of continuing to be employed by the firm on an "at will" basis without having some rights to their contributed "capital."
What's next a "capital call" requirement from associates? How about paralegals, secretaries and maybe even law clerks? How about Howrey ask for a little bit of "capital" contribution from incoming 3L's? Maybe instead of a stipend not to work for a year Howrey could demand half of their deferred 3L's salaries from MickyD's as a "capital" contribution so the firm could survive and maybe hire them full time in January 2011 at the equivalent of a paralegals salary?
What a freaking joke!!
Capital Call contribution from non-equity "partners"!
They are not really partners!! They are only called that their their hourly rate can be higher than a fifth years.
They'v been trying to shove junior partners out the door for awhile now. This is just another method.
10% capital contribution = salary cut. That's all this is. They have already started cutting associate salaries through their new non-lockstep compensation plan.
interesting. i'm looking out my window and straight into the howrey offices across the street. most of the offices are dark - maybe people got the message.
Who cares? Howrey is not even a second-tier firm. Solidly third tier, at best.
Any firm dumb enough to hire anyone from the management committee of a failed firm deserves what they get.
If I were a non-equity partner, I would not contribute a darn cent without a written agreement of some kind of return on investment.
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Any firm dumb enough to hire anyone from the management committee of a failed firm deserves what they get.
If I were a non-equity partner, I would not contribute a darn cent without a written agreement of some kind of return on investment.
34 clearly must be part of Howrey's management
Any firm dumb enough to hire anyone from the management committee of a failed firm deserves what they get.
If I were a non-equity partner, I would not contribute a darn cent without a written agreement of some kind of return on investment.
No need to be homophobic, 35
39 - you're right. i'm sorry.
-35
33 -- are you really that insecure that you have developed your own tier system?
41 -- if you are too stupid to recognize which firms are first tier, second tier, and so on, then it's really not worth trying to explain it to you.
I drink up all the Hennessy ya got on ya shelf,
So just let me introduce myself.
My name is Humpty, pronounced with a Umpty,
You Howrey, oh how I like to hump thee
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Could not be happier to see The Glass Cock out of retirement.
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how will first year staggering be decided I wonder?
how will first year staggering be decided I wonder?
how will first year staggering be decided I wonder?
48-50 -- you're a tool.
Well, the question is whether a fake partner signs the partnership agreement or whether they're an employee. All being an equity partner generally means is that your income rises and falls with the income of the firm. Fake partners still generally sign the partnership agreement - it's not like they're not partners in the legal sense - the partnership agreement simply stipulates that they don't participate in firm profits and losses (which usually means they aren't assigned units or interests that change from year to year) and they're paid a fixed salary the same way an associate is.
Saying a fake partner is an at will employee doesn't really mean much - partnership agreements generally treat partners no differently, it's not like the partners have to vote every time a partner is counseled out, which does happen.
So, yeah, there's no fundamental reason why a fake partner who has signed the partnership agreement can't be forced by the terms of that agreement to make a capital contribution. The firm is just putting the risk of its failure onto their shoulders.
I heard Howrey also had a mass layoff of staff attorneys a month ago or so. I don't see any stories about this anywhere in the archives.
This firm isn't going to exist in six months, so a capital investment would not be a good move.
54 - bold assertion about one of the few firms whose profitability was UP last year.
55:
That was LAST YEAR. This is THIS YEAR.
A lot can change in 12 months.
Twelve months ago George W. Bush was Presdident, the world community hated us and the economy did not suck......yet. Now Barack Obama is President, the world community loves us (at least some of them) and the economy sucks.
Change you can believe in.........
And Howrey being in deep doo doo as W. would say....
36 - there is a written agreement, it is called a partnership agreement, and without having the benefit of looking at Howrey's particular document I am confident that it provides for the return of all capital contributions (i.e., the partner's capital account) upon the partner's departure from the firm.
Even if not, don't you think that a partner could make the argument that (s)he is entitled to a refund under a promissory estoppel theory?
57 is correct. Also, most firms pay yearly interest on the capital contribution.
52 -- I have limited knowledge about this, so sorry in advance, but I think that "counseling out a partner" (and utlimately have the partner removed from the firm payroll) requires a partners' vote in most LLP agreements.
56 - not sure how this proves Howrey is in deep doo doo. most peer firms have laid off 100+ attorneys and push back incoming first years to 2010. Howrey has done neither other than to stagger a few incoming first years a bit.
Unlike some firms that hired 100's of SA's in this economy, Howrey's incoming class sizes as noted by the article are much smaller. The firm is obviously a lot better managed than some firms (e.g. LaTTThamite firms).
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Firms can fund their business operations two ways - borrow money from banks or borrow it from their partners. After seeing what happened to Thelen, it's better to borrow from partners. Many firms require non-equity partners to make modest capital contributions. You borrow the money from a bank and pay it off over 5 years. Rates are cheap right now and the interest can be deducted as a business expense. More firms should do this. It gives non-equity partners a stake in the firm which will hopefully motivate them further to advance to equity partner. They will not share in the firm's profits, but the equity partners also take the first hit if there are losses.
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Howrey sucks - I work there and the "all staff" meeting held yesterday was worthless. It was meant to prevent panic among the staff, but anyone who believes everything is fine is naive and stupid. How many firms have told their employees that no layoffs are coming only to lay off handfuls a month later. Howrey will be no different.
Lots of attorneys are very slow and will be pushed out the door in no time. It's a frigid place to work and the lack of communication in that place is astounding.
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69 - i heard the same thing - and the married partner makes her kids eat out of the garbage can and has a post-it note on her computer that says "take the high road"
take the high road must mean stick a butt plug up my ass and i promise to wear a ball gag and hood
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Lat/Ellie, please do your job and remove the offensive posts 61-70.
The real question is how will this effect Howrey's summer camp?
Doesn't Howrey hire fat, black turds like Elie? No wonder it sucks!
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76 - you rock !!!!
74 - don't be a racist DB. Calling Ellie racist turd is sufficient to indicate he is black.
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Yeah, hell with this as described. No equity is no equity, and if you don't have equity, you're an employee.
This is a lawsuit waiting to happen. At least some courts have looked skeptically at firms that try to claim certain people as "partners" when it benefits the firms, but then the "partner" is really just an employee without any of the trappings of genuine partnership. You can call something a capital contribution all day long, but if the "partner" has absolutely no expectation of or entitlement to any profits or losses, and is foreclosed from participating as a true partner, then it sure sounds like a loan from an employee.
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84 - where do i sign up ?
52 -- you're not entirely correct, if at all. equity partners generally have a right to vote on certain matters, like governance, client and other business issues, that non-equity partners do not. in addition, a non-equity partnership agreement often differs from an equity partnership agreement (certainly the applicable rights and obligations would).
also, i don't believe that non-equity partners at howrey previously had a capital contribution requirement, which is what this post implies (e.g., referring to an "increase" in such "contributions"). requiring a capital contribution from a non-equity partner is not at all typical, so it's more likely that such a requirement did not previously exist at howrey. in addition, it simply does not make much sense to require a non-equity partner to "buy in" to the partnership, as others have pointed out.
Just an FYI: Howrey "non-equity" partners do have some profit sharing, so they are closer to what some firms call partial equity partners.
Restructuring? Just call it what it is. Trying to survive and layoffs. It's just the beginning. Howrey is top heavy with too many administrative staff and the cuts are just beginning. It's also a very cold place to work. The way they treated the former HR Director NA was just hideous. She was the only nice one in the bunch and it hasn't been the same since she left.
88--I agree. There are several departments at Howrey that are completely bloated with highly-paid people who don't add to the bottom line. RR is a huge fan of having a corporate-style environment with lots and lots of executive-level staff and middle-manager equivalents, but it's not necessary and Howrey could be a much leaner ship.
88 - details, for the love of sweet christ. details, please.
this firm obviously sucks because it took on a large chunk of TTThelen
Sounds like they are violating labor law. Remind me not to hire them for my employment disputes.
being a member of the firm is like being a member of a cult. not that there is anything wrong with that, but firm life is really raw because it is so real.
83 - try reading a partnership statute sometime. Idiot. Are you even a lawyer?
92 - Labor Law involves unions. An "employment dispute" would be Employment Law. The two are totally separate.
Howrey sucks. Why are we wasting 90+ comments on this loser of a firm? $10 bucks that Howrey exploeds in a year.
O'Doul rules!
7 = Hilarious.
what ?
Lat/Ellie, please do your job and remove the offensive post 72.
Lat/Ellie, please do your job and remove the offensive posts 3, 9 and 27
Lat/Ellie, please do your job and remove the offensive posts 10-24, 30 and 41
I am not sure that the bank would make a loan to a non-equity partner unless they get a share of the profits. Also, banks like Citi make the firm provuide something akin to a guaranty for the loan. They get the money back from the firm if the partner does not pay it back. If the firm is not treating the non-equity contribution like the capital of an equity partner, then why would they loan it?
As an equity partner, I am happy that my firm has asked us to put in more. I don't miss the extra couple of grand each month and feel better that we are building more buffer.
It takes McDermott FOREVER to return money.
Wow - Howrey was on the forefront of sending work to India. I am guessing that was not a good long term play. One of the worst managed firms out there. F Howrey (Falls Church was another brilliant move) .
That's a good point 57. Those non-equity partners giving a contribution would be relying to their detriment if they never received anything for their contribution. Section 90 is amazing.
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looks like someone is practicing their typing ?
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who cares
Is it 4/20 yet?
-Michael Phelps
i agree
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- 59 - I don't know what your basis for that belief is, but under Delaware law the partners to an LLP agreement can delegate the power to remove partners to the LLP's managing parter. With respect to law firms, I'll admit that I haven't reviewed many LLP agreements, but I can tell you from talking to many lawyers that delegating firing power is common (it's certainly what's done at my firm), if for no other reason than because it would make for some very uncomfortable votes.
- 86 - How does anything you've written contradict a single thing I've written? I never said, nor implied, that just because a fake partner signs the partnership agreement implies that they have all of the rights of the partnership. It's an LLP - the firms can do whatever they want in terms of governance. Non-equity partnership agreement? What the f*** does that mean? Firms don't have separate agreements that govern the fake partners. The partnership agreement is the organizational document that governs the firm. Did you flunk your corporations and partnerships class or have you just not taken it yet?
-52
117 - thank you for your wise counsel
Jones Day has always required non-equity partners to contribute capital. And, when you leave, they do not return your capital for 5 years.
At least some of the pain is being spread to partners.
I'm an associate at Thompson Hine, and so far they've been doing everything possible (stealth layoffs, announced layoffs, 1/6th pay cut for associates) to keep the partners from feeling the pain. All hail PPP.
Unreal thread of BS here...
And you people are in charge of the world?
self indulgent greedy childish morons
Heaven help us.
Staff pays too. Howrey just cut my vacation by 10 days per year. :-(