Credit Crisis, Layoffs, Partner Profits

More Layoffs Expected in 2009

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Dan DiPietro, client head of the Law Firm Group of the Citi Private Bank, doesn’t think we’ve seen the end of lawyer layoffs. In the American Lawyer, he writes:

Among our 175-firm sample, head count for fiscal 2008 was up 4.5 percent from fiscal 2007. I showed the flash report of our sample to a colleague of mine who lends money to Fortune 100 companies. Her response? “So, Dan, the way law firms make money is to grow head count when demand drops?” This is a neat way of summing up the problem firms faced as they entered 2009–too many lawyers chasing too little work.

But I thought that all the struggling firms have already laid all the attorneys they could afford to spare?

With fairly aggressive layoffs evident in all but the top New York-headquartered firms, the decline in bonuses, and no foreseeable movement in salaries, expense growth will moderate, if not decline. This should net out to a 5-10 percent decline in profits per equity partner from 2008 levels. (After the meeting, several managing partners told me I was still too optimistic. To them and others at top New York firms I say: “Think layoffs.”)

The pessimism expressed at that meeting has been repeated to varying degrees in the 16 regional roundtables that my colleague Cindy Tambourine and I have just completed throughout the United States and in London. To put it simply, the mood in the U.S. outside of New York is grim; in New York it’s grimmer; and in London it’s the grimmest.

After the jump, are there any non-layoff paths to recovery?


As usual, DiPietro suggests that the only answers involve changing the nature of the law firm as we know it:

So the need for bold action and innovative thinking is upon us. Firm leaders have the chance to fix a broken business model–a model that relies too heavily on leverage and billing rate increases to drive profit growth, thumbs its nose at the concept of pay for performance, especially at the associate level, and assumes clients will continue to accept the billable-hour model.

These are times that cry out for boldness and innovation. But the window will not stay open for long. Who among you will be the first to act?

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As long as we’re changing the broken business model of Biglaw, is there any big time consultant that is willing to take a critical look at profits per partner? If we’re going to say that first year associates aren’t worth $160,000, that lockstep raises are a thing of the past, that associates who bill 2000 hours a year aren’t entitled to a bonus, are we still absolutely sure that partners are worth $2 million or $3 million or $4 million a year?

Who among the big time consultants is willing to look law firm partners in the eye and say “you guys get paid too much, your clients can no longer afford it.”

Cravath took at 23% hit to PPP. But they also haven’t laid anybody off, haven’t frozen salaries, haven’t deferred any associates, and aren’t looking to cut salaries. Firms were all too happy to follow Cravath during bonus time, but the “not laying people off” thing hasn’t really caught on.

I’m just saying, it would be interesting if one of these consultants mapped out a business model where everything was on the table, including PPP.

The Am Law 100 2009: Recession and Repair [AmLaw Daily]

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Earlier: The AmLaw 100

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