Layoffs, Partner Issues, Partner Profits

A Fly on the Wall at 425 Lex: Inside a Simpson Thacher Partner Meeting

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Above the Law has obtained what appear to be notes or minutes from a June 2009 partners’ meeting at Simpson Thacher & Bartlett. As you would expect, they are riveting reading.
A caveat: the notes appear authentic to us, and they’ve been making the rounds at Simpson, but the firm has not officially confirmed their authenticity. In addition, a firm spokesperson stated that STB does not maintain official minutes of partnership meetings. So please read this post with these warnings in mind. (We welcome private feedback on the notes and their contents; please feel free to email us.)
Let’s start with the important stuff. Back in June, when this meeting took place, Simpson seriously considered doing layoffs, in the truest sense of the word — large in scale, and open and notorious (not stealth). To their credit, however, the partners decided not to go down that path — even though it meant taking a financial hit, by forfeiting potential cost savings. From the minutes:

• Headcount: We continue to be oversized relative to demand in New York corporate, particularly among the younger classes and in California corporate. We have been working closely with Personnel and have aggressively been moving out underperformers and people who have been passed over for partner….

Obviously, we could “right size” faster if we implemented a lay-off (100 attys). And, we could target the younger corporate classes in New York and the younger classes in California. However, none of the top-tier firms has engaged in lay-offs. We do not want to be the first top-tier firm to engage in lay-offs. From a financial point of view, given the market practice that has developed, with respect to severance, the cost savings produced by a lay-off, as opposed to our aggressive performance-based reductions, is modest [no savings this year / $30K per/point next year].

More discussion, plus the complete minutes, after the jump.


We’ve been reporting on Simpson’s aggressive performance-based reductions for over a year now. These minutes seem to confirm that Simpson has been using ratcheted-up performance reviews to substitute for more public and widespread cuts. They also suggest, as we’ve argued in these pages before, that the difference between performance-based reductions and “layoffs” may be somewhat semantic. Hence the rise of the “stealth layoff,” when reductions that are primarily economic in nature are cast as performance-driven.
We don’t think any of our regular readers are so naive as to believe that Simpson Thacher is the only top-tier firm that has gone down the road of “aggressive performance-based reductions.” Simpson surely does not stand alone — but that’s cold comfort to Simpson lawyers. From one Simpson tipster:

[T]he underperformance part is crap. I know associates that have been asked to leave that have been getting absolutely glowing recommendations and referrals from powerful partners.

Let’s take a closer look at the meeting notes. They begin:

• On Wednesday, May 27, we had an Executive Committee Retreat at the exotic 30J location. All of us have been dealing with the profound recession that commenced in the summer of 2007 (notwithstanding, its official beginning in December of 2007). The financial meltdown was exacerbated by Lehman’s bankruptcy in September of last year and we have been dealing with the dramatic fall off in financial transaction activity that followed Lehman’s bankruptcy. Obviously, we have endured some very slow months in the last quarter of last year and January and February of this year. March showed improvement; in April, we dipped and in May we resumed our upward trend.

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Has the “upward trend” continued to the present day? Don’t forget the date on these minutes — June 2009 feels like ages ago. A Simpson source tells us that “[a]ccording to partners, everything here is ‘great,’ and things are ‘definitely picking up.'”
Even if current conditions at Simpson are better today, it’s still interesting as an historical matter to see what things were like back in June. Here’s the full discussion of “headcount” (the excerpt we used before the jump removed a nitty-gritty discussion of numbers:

• Headcount: We continue to be oversized relative to demand in New York corporate, particularly among the younger classes and in California corporate. We have been working closely with Personnel and have aggressively been moving out underperformers and people who have been passed over for partner.

We have had 55 departures year-to-date, and including departures for Fellowships, expect to have 90 departures by the end of July. For the calendar year, after factoring in arrivals, we will shrink by 35 to 40 attorneys in 2009, and with our small summer class converting to a small arrival class in 2010, we are on track to shrink by 35 to 45 additional attorneys in 2010 and by an additional 50-60 attorneys in 2011.

Obviously, we could “right size” faster if we implemented a lay-off (100 attys). And, we could target the younger corporate classes in New York and the younger classes in California. However, none of the top-tier firms has engaged in lay-offs. We do not want to be the first top-tier firm to engage in lay-offs. From a financial point of view, given the market practice that has developed, with respect to severance, the cost savings produced by a lay-off, as opposed to our aggressive performance-based reductions, is modest [no savings this year / $30K per/point next year]. [The course we are on produces a 100 attorney reduction over a two-year period/ probably only 75 down from today’s headcount.]

“And, we could target the younger corporate classes in New York and the younger classes in California.” Junior transactional lawyers in New York and Cali, we hope you’re keeping your hours up.
Things may have improved at the firm since June, but you never know what the future holds. As one Simpson source who sent us the minutes said, publicizing the layoff discussions will hopefully encourage STB associates and staff to “prepar[e] for a rainy day.”

• The course we are on does produce irregular class sizes – large 2007 and 2008 classes and small 2010 and 2011 classes. We recognize that will present some issues.

Indeed. This is a milder version of the problem created when a firm simply stops recruiting and cancels its summer program for a year. You end up with gaps or irregularities in the talent pipeline, which are not good (as explained by Bruce MacEwen of Adam Smith, Esq.).

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• Again, what are we doing about the expense side of the equation? You will see from the 5-month numbers that our expenses to date are below last year. We, as you know, have eliminated lots of costs. As I mentioned, our revised budget eliminates bonuses for the younger classes (2005-2009). As previously mentioned, we are about to have a staff reduction for unnecessary positions [some secretaries, some receptionists, some people in duplicating].

Note that these minutes, for a meeting that we’re told took place on June 8, 2009, state that “we are about to have a staff reduction.” On June 16, we reported on staff layoffs at Simpson Thacher that took place on June 15. This is one indicator of the accuracy of these minutes.
We have covered some of the other STB cost-cutting measures. E.g., reductions to the summer associate lunch program.
The notes envision eliminating bonuses for the younger classes (2005-2009). This did not come to pass; Cravath set the bonus bar low this year, but not that low. Simpson matched the market (Cravath’s scale, not the Sullivan & Cromwell bonus), paying bonuses to the classes of 2005 to 2008.

• Also, we need a great deal of help from the partnership in order to achieve the reductions we need. We need help finding job opportunities for more senior associates; we need partners to take on added work so we can move out some of the senior associates; and, we need partners to submit reviews, including reviews when performance is below the desired level.

Despite the unvarnished look at the state of Simpson as a business, there are some positives in the minutes too. Here we see the firm encouraging its partners to help senior attorneys find new jobs, instead of just kicking them to the curb. The firm could have “right-sized” more quickly, though layoffs, but it decided not to, thereby giving associates more time to get their act together and find new positions.
The lateral market might be extremely tight, but you shouldn’t have really needed the Simpson minutes to let you know that Biglaw jobs are not secure. Some people have stuck their heads in the sand, hoping that the Great Recession will pass them by, but most people understand that nobody is safe. Young corporate attorneys in New York have had plenty of time to see the writing on the wall.
So take a good look at the minutes. They represent what Biglaw management committees are thinking.
Take heed. And consider yourself warned.
UPDATE: More internal documents from STB are available here.
SIMPSON THACHER & BARTLETT — NOTES — JUNE 2009 PARTNERS MEETING
• On Wednesday, May 27, we had an Executive Committee Retreat at the exotic 30J location. All of us have been dealing with the profound recession that commenced in the summer of 2007 (notwithstanding, its official beginning in December of 2007). The financial meltdown was exacerbated by Lehman’s bankruptcy in September of last year and we have been dealing with the dramatic fall off in financial transaction activity that followed Lehman’s bankruptcy. Obviously, we have endured some very slow months in the last quarter of last year and January and February of this year. March showed improvement; in April, we dipped and in May we resumed our upward trend.
• It was in that context that we met twelve days ago to review where we are and what actions we should take on pricing, attorney headcount, and partners and points.
• Headcount: We continue to be oversized relative to demand in New York corporate, particularly among the younger classes and in California corporate. We have been working closely with Personnel and have aggressively been moving out underperformers and people who have been passed over for partner. We have had 55 departures year-to-date, and including departures for Fellowships, expect to have 90 departures by the end of July. For the calendar year, after factoring in arrivals, we will shrink by 35 to 40 attorneys in 2009, and with our small summer class converting to a small arrival class in 2010, we are on track to shrink by 35 to 45 additional attorneys in 2010 and by an additional 50-60 attorneys in 2011. Obviously, we could “right size” faster if we implemented a lay-off (100 attys). And, we could target the younger corporate classes in New York and the younger classes in California. However, none of the top-tier firms has engaged in lay-offs. We do not want to be the first top-tier firm to engage in lay-offs. From a financial point of view, given the market practice that has developed, with respect to severance, the cost savings produced by a lay-off, as opposed to our aggressive performance-based reductions, is modest [no savings this year / $30K per/point next year]. [The course we are on produces a 100 attorney reduction over a two-year period/ probably only 75 down from today’s headcount.]
• The course we are on does produce irregular class sizes – large 2007 and 2008 classes and small 2010 and 2011 classes. We recognize that will present some issues.
• Also, we need a great deal of help from the partnership in order to achieve the reductions we need. We need help finding job opportunities for more senior associates; we need partners to take on added work so we can move out some of the senior associates; and, we need partners to submit reviews, including reviews when performance is below the desired level. [And, we need support in enforcing deadlines.] [Mary Beth will talk more about that in a few minutes.]
• Again, what are we doing about the expense side of the equation? You will see from the 5-month numbers that our expenses to date are below last year. We, as you know, have eliminated lots of costs. As I mentioned, our revised budget eliminates bonuses for the younger classes (2005-2009). As previously mentioned, we are about to have a staff reduction for unnecessary positions [some secretaries, some receptionists, some people in duplicating].
• Compensation: Our modified lock-step compensation system serves us well, helping to create the sharing and collegial team approach that enables us to deliver quality legal service across our substantial band of talent to our sophisticated clients.
UPDATE: More internal documents from STB are available here.

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