Greenberg Traurig fell $10 million short on year-end collections and will leave salaries "at present levels until we get a better financial picture for 2008," chief executive officer Cesar Alvarez wrote in a memo to the firm's lawyers.
The year-end memo caused an immediate stir among associates, prompting Alvarez to quickly send a second note to the firm's 1,750 lawyers saying that he was not freezing associate pay. Associates typically get a raise each year as they become more experienced.
Alvarez told the Daily Business Review that the salary freeze at Miami-based Greenberg is for equity shareholders only.
The initial memo was a series of mixed messages praising the employees but warning about "significant challenges" posed by the souring economy and cost-cutting pressures in the legal industry.
Alvarez cited the "wonderful strides" made by the firm, but the memo looked ahead to "this year of uncertainty" and warned about the "need to watch every dollar" and "manage conservatively for the greater good."
In his memo, Alvarez said the firm had already collected $313.5 million and projected to finish December with $330 million in collected billings -- "a great accomplishment when you consider the housing situation, the subprime issues and the dislocation of the credit markets." The firm was hoping to collect $340 million.
In an interview, he said the firm had its best year ever, 2007 revenue exceeded the firm's budget projection by $19 million, and revenue is expected to be up by double digits this year.
But the memo said "vocal" clients are "taking action on the perceived high cost of legal services" by asking for lower bills and lower hourly rates or specifying experience levels for professionals assigned to them.
His references to pay were chilling to some.
"We have tried to compensate everyone fairly, and we hope that next year will be no different," Alvarez wrote. "More will be asked from each of you, and if you answer the call and help our firm have a good year by working efficiently and doing more, we will do our best to reward those who did their part."
The memo has been a topic of discussion among Greenberg attorneys, but it hasn't created any deep concern about the firm's future, said one of the firm's South Florida lawyers who asked not to be identified.
"People are definitely talking about it," the lawyer said. "They haven't seen any signs yet. No one's too nervous."
But it left people wondering about potential layoffs. Cadwalader Wickersham & Taft opened the door last month by getting rid of 35 capital markets and structured finance lawyers.
The anonymous Greenberg lawyer is hoping for the best, saying: "We think it's more worry ahead of time so we can avoid the worst in the future. If we cut back now, we can avoid layoffs in the future."
In an interview, Alvarez acknowledged a need to warn of "a potential slowdown." But he said the firm hasn't had a down year since 1967 and has flourished in past recessions because of prudent management.
By taking a cautious approach to the year, he said, "If we're prepared and nothing happens it will make us much better, and if it does happen we won't have a bad year."
Greenberg joined a short list of law firms with more than $1 billion in revenue in 2006, according to American Lawyer's latest revenue figures.
The firm ranked No. 10 of the Am Law 100 with $1.04 billion in revenue in 2006, up 21 percent from the year before.
But Alvarez concedes market forces in the legal industry aren't in favor of growth. With hourly rates climbing, billable hours are flattening, collection rates are down, firms are seeing tandem growth in expenses and revenue, and clients are demanding alternative rates and discounts.
"If you look at the last five to six years, there are five levers that move a law firm to have good financial results. Four are flat or negative, and one is moving in the right direction," he said.
Although Greenberg is already managed and operated more like a business than many other firms, Alvarez said firm managers will keep an even sharper eye on workload and productivity this year.
He said the 30-city law firm is better able to manage itself because it has a wide range of practice areas, which allows the firm to shuffle lawyers in less busy practice areas to other more robust areas.
"We respond by doing a number of things by making sure that we look at our capacity and our workloads, and instead of doing this on a monthly basis we now do that on a weekly basis," Alvarez said. "The monitoring of your performance on a much closer basis as far as capacity is critical."
Other tactics the firm is using to better manage itself is to be more flexible with client demands for alternative fee structures, more closely examine the number of lawyers assigned to a client and be more mindful of billable hour rates when determining how many lawyers work on a client's matters. He also said the firm will look to more efficiently utilize its office space in the future.
Alvarez said his memo was widely distributed because of his policy of keeping everyone at the firm informed about the firm's business and expressed some annoyance with the leak.
"It was confidential to the firm," Alvarez said. "Somebody's decided to send it outside the firm, but that's the way life goes nowadays. I'm not the least embarrassed that this went out of the firm."
Alvarez's concerns about the economy were echoed in a client advisory based on a survey by Citi Private Bank and Hildebrandt International last month. The report indicates the legal industry is facing slower productivity and a drop in structured finance, merger and acquisition, and other transactional work coupled with noticeable growth in litigation and bankruptcy and reorganization work.
Alvarez is hardly the only managing partner worried about the uncertain economic picture.
"Economics are always of concern. When the economy is booming or the economy is slowing down, we're always looking at how we're doing," said Harvey Gurland, administrative partner of Duane Morris' 30-lawyer Miami office. "Can we manage ourselves better?"