Citing a drop in demand for premium legal services that he called the "new normal," executive partner Barry Wolf announced Monday that the firm is trimming associate head count by 7 percent, laying off 110 non-lawyer employees, and cutting the compensation of about 10 percent of its 334 partners.

In a speech to the partnership and in a firmwide memo distributed via email, Wolf also said Weil is scaling back its complex commercial litigation practice, a group that includes some 200 lawyers, with the Houston and Boston offices seeing the biggest cuts.

Wolf noted in the memo that a steady diet of financial crisis–related work over the last several years—most notably, Weil's role as lead debtor's counsel in the Lehman Brothers bankruptcy—had allowed the firm to avoid making dramatic cuts on the expense-side of the ledger amid what continues to be a sluggish market for high-end legal work.

Until now.

"As the restructuring and litigation work related to the 2008 financial crisis winds down, and as the overall, market for transaction activity remains at the lower levels which we believe is the new normal, we must now make the adjustments we avoided over the last few years to position the firm to continue to thrive," Wolf wrote. He added that while the firm "will continue to take significant steps to further increase our market share," evidence that "the market for premium legal services is continuing to shrink" dictates that "actions to enhance revenue alone will not be sufficient to position the firm as necessary for these new market conditions."


Interviewed later in the day, Wolf said he and other firm leaders believe the fall-off in work that has marked the last several years is not a cyclical occurrence: "We don’t see a dramatic shift back to the way things were."

The layoffs announced Monday affect 60 of the firm’s roughly 900 associates, with the lawyers being let go coming from across practice groups, seniority levels, and offices, according to the firm. The laid-off associates are to receive severance equal to six months' salary. While the layoffs of non-lawyer staffers cut across virtually all departments, about half of those leaving are legal secretaries, the firm said. Those employees will receive severance based on their current salaries and years of service with the firm.

The partnership ranks did not emerge unscathed. Some 30 partners—a mix of income and equity partners—will see their compensation cut significantly. The partners in question come from all practice groups, but the litigation and corporate practices will be hit especially hard, according to the firm.

Some of those affected can expect their pay to be reduced by two or three of the firm's 15 compensation “bands,” according to Wolf. One former litigation partner, speaking on the condition of anonymity, said such a reduction could cost an individual partner between $200,000 and $500,000 a year.

Another former Weil partner suggested that the move could lead to a thinning of the partnership ranks. "Those are probably partners they would not mind leaving the firm," this former partner said.

In his memo, Wolf acknowledged that as a result of the reduction in partner compensation "[i]t may well be that some of these partners will decide to pursue other opportunities." Speaking later in the day, however, he downplayed that prediction, saying, "We expect some of these partners will leave, but many will not.”

Wolf also sought in the memo to distinguish his firm from Dewey & LeBoeuf and that firm's spectacular collapse, ticking off three significant ways in which Weil differs from Dewey (without identifying the now-defunct explicitly): it has no outstanding debt, has a fully funded partner pension plan, and does not pay compensation guarantees to partners beyond the first year that a lateral hire joins.

The cutbacks come on the heels of a year that, according to the most recent Am Law 100 data, saw Weil's gross revenue remain essentially flat compared to 2011, at $1.23 billion. The firm's profits partners per profit, meanwhile, fell 8.6 percent, to $2.23 million. The decline in profits came as Weil added 20 lateral partners, bringing its total equity partner head count at the end of 2012 to 195. The firm had 112 non-equity partners as of the end of last year. (The firm also elevated a dozen associates to partnership, as income partners, according to The American Lawyer criteria.)



Commenting on Weil's financial performance in 2012, Wolf said earlier this year that it was satisfactory because, though profits dipped, demand for the firm’s services had increased 3 percent year to year. On Monday, however, he said this year's results to date have been disappointing: demand fell in the first quarter of 2013 and failed to recover in the second quarter, despite the firm's work a string of recent major M&A deals.

Even before Monday's announcement, Weil had already seen a number of significant departures so far this year, with eight partners leaving since January 1, according to data collected by The American Lawyer. The departed include: Boston-based white-collar defense and investigations cochair Thomas Frongillo, who joined Fish & Richardson in March; Washington, D.C., office head Michael Lyle and fellow D.C. litigator Eric Lyttle, both of whom joined Quinn Emanuel Urquhart & Sullivan two weeks ago; and a three-partner London-based private equity team led by Mark Soundy that left for Shearman & Sterling in May.

Discussing what prompted Weil to undertake the cost-cutting moves, Wolf says the firm began to seriously consider a restructuring after hearing a presentation earlier this year by Dan DiPietro, chair of Citi Private Bank's law firm group. During that presentation, Wolf says, DiPietro cited Citi findings showing that average annual partner hours billed at the country's 15 most profitable firms had declined by about 10 percent since 2008. With that information in hand, Wolf asked practice group heads in early June as part of the annual compensation-setting process about to report back to him about how they expected each partner to perform this year. That process was completed as of this morning, a few months ahead of the usual schedule, Wolf says.

Reached by phone, DiPietro confirmed that Citi conservatively estimates that law firms have 6.5 percent excess lawyer capacity, with those “higher up in the food chain” closer to 8 percent or 8.5 percent. He adds that while the easiest place to make attorney cuts is in the associate ranks, the greatest excess capacity remains at the higher-priced income partner and counsel level.

Weil’s experience is being felt across the industry, according to DiPietro. Citi reported earlier this year that demand for legal services was down 3.5 percent in the first quarter of the year compared to the same period in 2012 among all firms.

“It’s a pretty significant decline on what already was a pretty weak demand environment,” DiPietro says. “My guess is firms are looking at the demand environment, saying we’ve been holding on for a long time to our people, and we just can’t wait any longer.”

Other legal consultants say Weil’s move could be the first in a wave of cutbacks.

"Now that Weil has done it, we can expect as we have experienced in prior years for a number of firms to step up and make similar moves. It may not be as timely. It may be too late for some. But the light is on in the arena," Edwin Reeser, an attorney and legal consultant in Southern California, said via email.

“This will not be the last,” adds legal consultant Bruce MacEwen. "I actually think Barry Wolf is absolutely correct to say that they are doing it from a position of strength. In a perverse way, this makes them even stronger. More important, it may give symbolic permission to other firms to do similar things."

One of the former partners interviewed by The Am Law Daily says Weil had little choice but to make the cuts. Because the firm is transparent with its performance information to partners, this former partner says, it has been apparent for the past several months that a number of broad practice areas were feeling the pinch simultaneously. The litigation group, for instance, has seen a number of major cases wind down around the same time, he said. Among the matters that have slowed or ended entirely recently, he noted, are a major American Airlines antitrust litigation; a fraudulent conveyance trial against client Anadarko Petroleum and Kerr-McGee over its spin-off of Tronox; some of the major litigation spawned by the Lehman bankruptcy; and the wind-down of the Exxon Mobil MTBE contamination litigation.

“The challenge that [Weil has] is filling that pipeline,” this former partner says.

At the same time, the firm has experienced a reduction in both bankruptcy and corporate work, practices that in the past have essentially functioned as counterweights to one another. “If corporate work moved up and bankruptcy was down, that was okay,” this former partner says. “But for whatever reason, that didn’t happen. There wasn’t a major corporate uptick” as the recession ended.

Several of the major bankruptcies the firm has been involved with in recent years—General Motors Company, Lehman, General Growth Properties—have already wound down. Meanwhile, the firm is representing AMR Corp., the parent of American Airlines, in its Chapter 11 case, and on Friday was retained to represent the bond insurer in the Chapter 9 bankruptcy proceedings of San Bernardino and Stockton, California.

Monday's announcement came as Weil, like most large firms, is hosting a group of summer associates. Wolf says the associate layoffs will have no impact on the current crop of summers. And while saying that those who qualify can expect to get job offers as in years past, he did acknowledge the layoffs could affect future recruiting.

Am Law Daily reporters Brian Baxter and Sara Randazzo and Christine Simmons, a reporter for sibling publication New York Law Journal, contributed to this story.