Despite speculation that others might follow in Weil, Gotshal & Manges’s footsteps after it laid off 60 associates and 110 staffers Monday, the leaders of several large law firms tried during conversations with The Am Law Daily Tuesday to distance themselves from the possibility that they will make layoffs, pointing out that Weil's situation may be firm-specific.
The leaders of six Weil peer firms who agreed to speak say they are not currently considering lawyer layoffs, and five of the six said they are not looking at staff cuts either. Leaders of 15 other Am Law 100 firms either did not respond to calls on the topic or said they had no comment. Several firm leaders said they did not want their names attached to a story about layoffs, citing their experiences during the last season of layoffs in 2008-2009, because the layoffs received negative press attention.
“We are not planning any layoffs,” says the managing partner of one top New York firm. "We don't have excess capacity. But that said, it's a very fragile environment."
Speaking to The Am Law Daily Monday, Weil managing partner Barry Wolf attempted to cast the firm's decision as a response to broader trends, calling the downsizing a response to the "new normal." He cited a recent Citi Private Bank law firm group survey that found that the 15 most profitable law firms have on average excess lawyer capacity of 8-8.5 percent above what they had in 2007. This means that at elite firms, lawyers on average at the top firms are working nearly 200 hours less per year than they were in 2007.
But the six managing partners interviewed for this story didn't agree. The year "2007, demand was at its peak," notes the leader of a top national firm. "In normal cycles, there's going to be a 10 percent swing. You try to build a firm for reasonable ups and downs. We had a peak in 2007, then the biggest dip in our lifetime. It's come back now. Whether you call it 'the new normal' or not, I suspect demand is going to come back, albeit slowly."
Given this reality, says another managing partner at a top 25 firm, Weil’s cuts may be short-sighted: "If you don't have bodies when things do get busy, you miss opportunities, so I think you have to take a long-term view."
Clients, meanwhile, are unlikely to view Weil's move in a negative light, according to David Brill, executive vice president and general counsel of American Stock Transfer & Trust Co. and the president of the Association of Corporate Counsel's Greater New York chapter.
“I think clients have undergone this at their own companies at different points,” says Brill, who nonetheless expressed some surprise at the number of associates the firm let go. “Law firms are not immune to the same business dynamics as their clients." In the current environment, he adds, “for non-critical matters, there is a lot of competition among regional and national law firms.”
Several firm leaders note that the stresses facing Weil may be the result of its focus on bankruptcy and restructuring, a practice in which it dominates the market. That practice, these managing partners say, generated heaps of work for both corporate lawyers and litigators during the downturn. But several huge mega-bankruptcies in which Weil has played a role have either ended or are winding down. They include Lehman Brothers, General Motors, General Growth Properties, and Washington Mutual, Inc. “An enormous percent of their revenues come from bankruptcy,” says one firm leader. “It has kept the whole firm busy."
Despite Weil's status as an elite firm—it ranked 17th in profits per partner in 2012, according to The American Lawyer's latest Am Law 100 survey—the layoff news "didn't shock me," says another leader of a top national firm, "not because I anticipate that more firms will begin laying off people, but because of the unique nature of Weil's bankruptcy practice. You tend to have one mega-bankruptcy at a time. Weil had more than one. So you end up pulling in your corporate lawyers, your litigators. And that work ends, and if you don't get lucky enough to have other matters come at the same time, you've got a problem."
Several recent restructuring engagements have spun off either deal work or litigation. Weil's major litigation matters last year, for instance, included representing Anadarko Petroleum Corp. in a multibillion-dollar litigation regarding Kerr-McGee's 2005 IPO and the spinoff of its chemical business, Tronox; it also represented Anadarko in the Tronox bankruptcy. That case ended last year. Currently, it is representing AMR Corporation, parent of American Airlines, as both debtor's counsel and in AMR's proposed $11 billion merger with US Airways Group.
Other firms say they are weathering a slowdown in corporate and bankruptcy work better than Weil due to greater geographic or practice diversity. "We're a different beast, because we're not New York-centric," says a lawyer in top management at an elite national firm. And some firm leaders say they winnowed their ranks during the recession and are now "right-sized."
Almost all firm leaders interviewed for this story say they disagreed that the Weil move will trigger other such announcements, like those that unfolded in 2008. At that time, Cadwalader, Wickersham & Taft, then among the most exposed to the early collapse of the structured finance market, led the pack. Cadwalader ultimately let go of 18 percent of its lawyers, according to data collected by sister publication The National Law Journal. The bloodletting began in January 2008, with the layoffs of 35 lawyers. Then-head of the management committee Gregory Markel told another sister publication, the New York Law Journal, that the firm had “concluded that [the slowdown] was not a three-month phenomenon or even a six-month phenomenon."
Cadwalader’s initial layoff announcement was soon followed by a stampede. At its peak, on a single day in February 2009 that came to be called “Black Thursday,” six law firms sent more than 700 attorneys and staff packing,
That prompted The American Lawyer’s Aric Press to write that firms were facing “a paradigm-shifting, blood-in-the-suites, terror-on-the-campus hiring and retention crisis.”
Ultimately during an 18-month period, staff and/or attorney layoffs were confirmed at 98 of the Am Law 200 and at least eight U.K. or European firms with New York offices, according to reporting by The Am Law Daily.
Since then, many other firms have winnowed their lawyer ranks in dribs and drabs, often via a more aggressive performance review process and via reductions in partner compensation. "There were a number of firms that didn't announce cuts, and 12 months later, you could see they had about a 10 percent decline in head count," says one managing partner. "They did it through performance reviews."
But the bloodbath in 2009 was the product of a cataclysm in the economy. “This time really is different,” Am Law Daily contributor Stephen J. Harper wrote Tuesday in an op-ed in The New York Times.
“Weil simply confirms what most lawyers already know: big-firm practice has become just another business.”
Reporters Claire Zillman and Christine Simmons contributed to this story.