Even the strongest San Francisco firms are being hit hard by the economic downturn.
Orrick, Herrington & Sutcliffe announced Thursday that it's laying off 40 associates and counsel and 35 staff. The cuts come in practice areas most affected by the slowdown: structured finance, real estate and corporate.
"This is the most significant financial crisis in my lifetime," said Orrick Chairman Ralph Baxter Jr. "It is something that happened relatively suddenly: It dropped and stayed down, and it produced a need to do this."
Orrick has always had a large structured finance practice, historically accounting for 10 percent of the firm's revenue. But it held off on layoffs as the market evaporated and others with similar practices like McKee Nelson and Cadwalader, Wickersham & Taft made cuts over the past year.
"We did respond to these changes with redeployment of people and with cost controls," Baxter said. "Ultimately, we concluded that in these three practice areas, the decline in demand was not going to return in any time period we could predict."
An Orrick spokesman wouldn't say how many lawyers or staff were laid off in each office, only that half of the cuts are in the United States, one quarter are in Asia, and the other quarter in Europe. It represents a 5 percent reduction of non-partner lawyers and a 2 percent reduction in staff. Baxter emphasized that none of the cuts at the 1,100-lawyer firm is performance-based.
At Orrick's home base in San Francisco, the mood was subdued. Attorneys and staff being laid off got the news from their managers first thing Thursday morning. A firmwide e-mail including a video from Baxter broke the news to the rest of the firm.
"It was to be expected in part, but to see people you've worked with and developed relationships with have to leave the firm is hard," said an associate who was not laid off, speaking on the condition of anonymity.
Even in the trying economic times, the layoffs came as somewhat of a surprise because firm management had given the impression that other cost-cutting measures were going to be enough, the associate said.
In recent years, Orrick has outperformed other San Francisco-based firms in growth and profitability, finishing last year with $1.66 million in profits per partner. This year, profits per partner will be down because of the economy and capital investments Orrick has made this year, Baxter said.
The layoffs aren't meant to boost profits this year. In fact, Orrick won't be saving "a nickel" this year from Thursday's cuts because of the cost of the severance packages, according to the Orrick chief.
A big part of the firm's investment this year has gone to hiring lateral partners. Orrick has brought in 80 to date, including 30 from the recently collapsed Heller Ehrman. Although the hires were expensive, Baxter maintained that the layoffs would have happened regardless.
Although Orrick is cutting associates, the remaining associates won't be sacrificing their bonuses. The blog Above the Law reported last month that Orrick would still pay end-of-year bonuses.
Orrick's announcement follows that of global firm White & Case, which said earlier this week that it would lay off 70 associates and 90 staffers. There is some speculation that more law firm layoffs are in the offing for the new year since the cost of severance packages can be put off for 2009. Then again, said some legal industry observers, 2009 is likely to be worse than 2008.
For laid-off associates, the job market isn't very good, especially in San Francisco, where two large firms recently dissolved.
"Particularly here, it's very difficult now," said legal recruiter Avis Caravello. "The Northern California market has been unusually saturated by first Heller and Thelen. You couple that with the economy being what it is and the time of year -- the outlook is pretty grim."
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