Above The Law used to be a place for perk-watching. Bonus wars! Pay raise watches! Perk craziness! Extending the length of maternity and paternity leaves!
As the economy has taken its toll on the legal industry, our coverage here has taken some dark turns. The layoff watch. The salary freeze watch. The delayed start date watch. The shrinking summer associate programs.
The New York Times has been reading. This weekend, they ran a piece proclaiming the end of Biglaw as we know it, entitled A Study in Why Major Law Firms Are Shrinking:
As the apocalypse on Wall Street ripples out into the larger economy, a thick red tide is lapping at the once-impregnable foundations of New York’s corporate law firms, threatening to turn the industry — and with it, some iconic city characters — into an endangered species.
White & Case offered itself up to the sacrificial altar for the piece, with chairman Hugh Verrier telling the tale of the firm’s troubles. White & Case has laid off over 200 associates, with the bulk of them let go on March 9, a day we called “bloody, black March Monday,” as the layoff announcements came rolling in from so many firms on that day. But the firm stands virtually alone in this NYT piece and will now be known as THE firm representing the downfall of Biglaw.
Why was Verrier willing to lay White & Case on the altar? In talking about the layoffs of associates and partners at the firm, he told the NYT:
Mr. Verrier said he saw the storm approaching shortly after he took control in 2007, and considered three options, in consultation with a group of core partners: Do nothing, which risked the firm’s survival; couch layoffs as decisions based on poor performance; or own up to the crisis and bid large numbers of lawyers a harsh but needed goodbye.
His choice to confront the situation directly, while lauded by many on the staff, carried the risk of seeming weak, of becoming the poster child for the industry’s demise. But he saw it as opening a window for White & Case to eventually reposition itself.
Perhaps this is his hope with the NYT article as well. Insight into the demise of Biglaw using White & Case as the poster child, after the jump.
As we said earlier, the NYT has been reading Above The Law — and your comments as well. They cite at length the comments on the bloody Monday White & Case layoff post:
Within nine hours of [Verrier’s] March 9 message, 231 comments — several, it appeared, from within the firm itself — were posted on the popular lawyers’ blog abovethelaw.com. They ranged from the apocalyptic (“Armageddon!!!”) to the ghoulish (“Is anyone handing out towels for this bloodbath?”), to the disturbed (“AHHHHH!”).
The firm has not recovered yet from the layoffs in March:
Months later, the corridors of White & Case are quiet, the happy buzz of business having gradually been replaced by a melancholy pall of diminished billable hours. Many office doors are shut — not because of meetings, but, as one associate put it, so that “the man with the ax” cannot find the occupants. Type-A partners, once glued to their BlackBerrys, suddenly have time for their spouses and their children; ladder-climbing junior lawyers linger over lunch.
So why is Biglaw dying? Beyond the obvious pressure of the recession, the New York Times points out a few specific reasons:
- The credit crisis: “Fewer Wall Street deals mean fewer Wall Street lawyers.”
- Pressure from clients to lower fees. As “case volume dips,” clients have more leverage in negotiating fees.
- Clients increasingly hiring regional firms
- The “cash-in-hand” business model at law firms
Many have been talking about that last point. As the NYT puts it:
That wall was especially hard because — remarkably like such ventures as the Mafia or the ice-cream vendor — many large firms operate on a cash-in-hand basis, with insufficient reserves to weather a slump.
dons partners generally get loans from banks at the beginning of the year to pay overhead — rent, associate salaries, etc. As the year goes on, they (hopefully) collect massive fees from clients, paying off the loans (and paying themselves out). Apparently, this is how your local ice cream truck driver — or maybe cupcake truck driver — operates his business as well.
There’s Darwinian talk in the piece about how law firms must evolve to survive:
[T]he natural order of this world has been set on end by the economic crisis and the possible disappearance of fixtures like the pyramid system (under which associates are thrown en masse at certain cases, fattening the fees), and the billable hour itself (increasingly replaced by flat rates or retainers in a client’s market). The tectonic plates have begun to shift in a nauseating manner, bringing fear, ambiguity and psychological scars.
We’re often skeptical of dire pronouncements made during times of crisis. When the economic sun comes back out, the doomsday talk can look exaggerated in hindsight. But as firms like Thacher Proffitt, Thelen, & WolfBlock have gone under, the talk doesn’t seem so outrageous:
“Is there a paradigm shift?” he asked, seated in a 40th-floor conference room with a privileged view of Times Square. “I don’t think anyone has a monopoly on what the future’s going to bring.”
Which may, in fact, be the point. Much like Merrill Lynch or General Motors, firms like White & Case, which still has more than 2,000 lawyers in 34 offices in 23 countries around the globe, are teetering on the beanstalk — at a moment when their pool of associates is large as case volume dips and clients demand lower fees.
“I hear the stories all the time,” Mr. Kowalski, the consultant, said. “Real estate lawyers are honing their skills playing solitaire. Younger lawyers are gossiping all day and scaring the crap out of one another. The head of the corporate department of a major firm just told me that he hasn’t billed a minute’s worth of work in the last two weeks,” he added.
This is the cue for you to take a pause in your solitaire game in order to gossip in the comments and scare the crap out of one another.
A Study in Why Major Law Firms Are Shrinking [New York Times]