Barton J. Winokur of Dechert
Dechert Chairman Barton Winokur remembers the 1970s.
"That was the longest decade in history. It lasted for 14 years," he said.
Or so it seemed.
It was a time of rampant inflation, rocketing gas and food prices and a bloated trade deficit. Thirty-five years later, the economic picture is much the same and is requiring law firms like Winokur's to reposition themselves for the downturn, however long it may last.
"Change is a good thing," he said.
The recent evaporation of structured finance deals and capital markets work in general has left Dechert and several big law firms with the dismal task of laying off lawyers. In Dechert's case, once news of 13 associate layoffs hit earlier this year, the law firm quickly offered to redeploy the attorneys affected.
Though dramatic for the rapid turnaround, Dechert's situation exemplifies a reshuffling under way in other big law firms as they move lawyers out of faltering practice areas into those that are less vulnerable -- or even thriving -- during the economic slump.
An often cited area that is absorbing lawyers is bankruptcy. In 2007, bankruptcy filings rose 38 percent, according to the Administrative Office of the U.S. Courts. The number of filings in 2007 totaled 850,912, up from 617,660 in 2006. Filings involving business debt rose 44 percent compared with 2006, from 19,695 to 28,322.
Recent bankruptcies include big retailers such as Levitz Furniture, Sharper Image Corp. and Fortunoff, which some fear represent just the beginning of a surge in commercial bankruptcies.
A 'CLUBBY' PRACTICE
Bankruptcy practice can be a clubby one in which debtors, creditors and trustees often interact in case after case before a relatively small pool of judges. Most redeployment of attorneys, however, is taking place at the associate level, said Bill Brennan, a consultant at Altman Weil. Making a shift at that level, as opposed to the partner level, is easier, since associates' work generally is more routine, he said. Moreover, workout services for troubled companies, as opposed to strict bankruptcy practice, are widening the opportunities for law firms.
For several law firms, layoffs have been inevitable due to the subprime mortgage mess, especially if their ranks are glutted with fledgling practitioners who are costing them $160,000 each in annual salary alone.
But the unsavory public relations consequences from those layoffs and the need for more associate help once the economy turns around have caused most firms to ride out the difficulties, Brennan said. Even if attorneys kept on board are only busy 75 percent of the time, "the result will be a long-term benefit," he said.
In the case of New York's Cadwalader, Wickersham & Taft, it is shifting attorneys to litigation, financial restructuring and general corporate work, said Gregory Markel, chairman of Cadwalader's litigation department and a member of its management committee.
Earlier this year, the 721-attorney firm had to lay off 35 associates, primarily from its mortgage-backed securities practice. Between 25 and 30 attorneys have permanently transferred all or most of their practices out of structured finance, global finance and real estate finance, Markel said, with another 20 taking temporary assignments in new areas.
A few other attorneys are spending small amounts of time on matters in new groups. Most of the attorneys are junior associates, he said, with "relatively few" senior associates involved.
The morale of associates, he said, was "interesting." He added, "Those who have switched think it's a good thing."
Because some of the firm's clients are experiencing slowdowns, the attorneys who have transitioned to new practice areas "realize it's good to have a legal job," he said.
Besides bankruptcy and workout practices, other areas expected to require additional help are litigation and corporate governance, according to a study released in March by Robert Half Legal. Of the 300 attorneys at large law firms responding to the survey, 25 percent expected more demand in bankruptcy and 24 percent said they anticipate an uptick in litigation work.
Some 17 percent said they will need more attorney manpower in ethics and corporate governance and 16 percent expect more work in intellectual property. Overall, 45 percent of the respondents said that they expected to hire more help, while 50 percent expected their firms to stay the same size.
Moving attorneys from troubled practice areas to healthier ones is "not easy, per se," said Charles Volkert, executive director of Robert Half Legal. But for firms that have needs in one practice while another is slumping, staffing up with associates who are known entities makes sense, he said.
Much of Thacher Proffitt & Wood's reconfiguring has involved partners, many of whose practices pertained to structured finance, said Jeffrey Murphy, a Thacher Proffitt partner with a concentration in structured finance and financial services.
So far this year, the New York firm has offered severance packages to about 50 associates in its real estate and structured finance departments.
The firm recently established a distressed asset practice group. The strategy is to use some of the attorneys whose work dealt with complex structured finance deals to handle sale of, and investment in, distressed assets. Bankruptcy partner Hugh McDonald and structured finance partner Christopher Lewis are leading the group. When dealing with transitioning partners, a law firm cannot issue a directive for them to switch practices, Murphy said. "It's really a matter of whether people have the time and energy and they are interested in going after the work," he said.
There are "some jitters" among attorneys making the changes, but good lawyers can transfer their skills readily, Murphy said. A four- to six-month transition period is the longest it should take lawyers to acclimate to their new positions, he said.
