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Corporate associates can forget about looking for greener pastures. With a drop-off in public offerings, venture capital funding, and a decline in associate attrition, the San Francisco Bay Area’s biggest firms are no longer looking to build their ranks. For the most part, firms have halted associate hiring in corporate departments. In addition to curtailing new hires, some firms acknowledge that they are thinning their ranks of under-performing associates. As San Francisco’s Morrison & Foerster chairman Keith Wetmore puts it, performance-related departures are commonplace, but “due to the overall slowdown in the equity markets we’re being more crisp in our departure timing.” This stands in stark contrast to a year ago when firms couldn’t hire enough attorneys. Since Aug. 31, 1999, the 10 highest-grossing Bay Area firms beefed up their ranks by nearly 40 percent — hiring an additional 1,730 lawyers to bring their combined ranks to more than 6,200. Corporate transactional departments were the biggest beneficiaries, and four firms with large high-tech practices — Palo Alto, Calif.’s Wilson Sonsini Goodrich & Rosati, San Francisco’s Brobeck, Phleger & Harrison, Palo Alto’s Cooley Godward and San Francisco’s Morrison & Foerster — accounted for three-quarters of those new hires. But all of that has changed. At Cooley, for example, “billable hours on the business side were very soft in January and it looks like this will continue in February,” said Mark Tanoury, the partner who heads the firm’s business department. “I certainly have concerns that if it continues to be this slow deep into the year our economics won’t be the same as we’ve enjoyed in past years.” And that, of course, means finding a new job may be a tough task for associates. “It was not unusual within the last couple of years [for a firm] to have pages of lateral needs,” said recruiter Lawrence Watanabe. But “today, there are zero to one or two openings” for associates at large national firms in San Francisco, Los Angeles and San Diego. The hiring situation is particularly stark in the corporate arena. “As little as a year ago a three-year corporate attorney was treated like a rock star,” said recruiter L. William Nason. “Now the same person would have comparatively few options.” ‘BAR HAS GONE UP’ Since the economy began slowing, just one firm has announced layoffs in California. Cleveland-based Arter & Hadden gave pink slips to 16 partners and associates in its Los Angeles office. The firm, however, contends the move was a strategic one — it wanted to retool the office to focus on key practice areas — not a nod to the slowing economy. And rumors have flown on the Greedy Associate Web message board about possible layoffs at local firms. Firm managers, however, say such speculation is untrue. “We’ve not chosen to do layoffs,” said Wetmore, whose firm was among those rumored to have laid attorneys off. “When we do, we acknowledge them.” Nevertheless, firms are finding ways to weed out associates who fail to measure up both in their “willingness to work and in the quality of their work,” said one top firm manager who spoke on condition of anonymity. Last year “all tech firms had so much work coming in that marginal people were kept on,” the firm manager said. Now these attorneys are being “terminated for cause.” The partner added that the number of such associates is relatively small, noting that his firm has dismissed 17 to 20 associates since the stock market’s steep decline in April 2000. Recruiters confirmed the trend. W. Jon Escher, of Palo Alto’s Solutus Legal Search, said he’s seeing more attorneys “from prestige law firms” on the market than six months ago. And firms can be more selective about who they hire. Steven Franklin, managing partner of Menlo Park, Calif.’s Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, said his firm is still looking for associates with a strong M&A or general corporate background. But he added that the “bar has gone up” for qualified candidates. BATTENING THE HATCHES Hiring cutbacks are but one sign that firms — particularly those focused on emerging companies — are battening their hatches. Legal consultant Donald Oppenheim, of Altman Weil Inc., said some firms are seeking advice on how to move attorneys over to new practices. For example, he said transactional real estate attorneys might become so-called “workout specialists,” or lawyers who help struggling companies untangle their financial difficulties. Retraining, however, may not be enough to slim corporate ranks. Morrison & Foerster’s business department, for example, grew 74 percent from 1997 through the middle of last year, from 275 to 450 attorneys. Cooley Godward’s corporate department grew even faster — 78 percent from January 1999 to January 2001. Cooley’s Tanoury said the firm hired 200 business and litigation laterals last year, which “has got to be twice what we’ve done in previous years.” Now that the tide has turned, Richard Climan, Cooley’s partner in charge of recruiting, said associate lateral hiring at his firm “has slowed to a crawl.” Climan attributes the hiring decline less to a dearth of work than to a slowdown in associate attrition. Climan said Cooley and other firms anticipated significant associate attrition when they set earlier hiring levels. As a result of those attrition levels coming to a standstill, “I think Cooley and other firms may find themselves in a situation where leverage is slightly higher than the ideal,” Climan said. However, he added, “normal attrition, coupled with strategic hiring of lateral partners, will bring us back into balance fairly quickly.” Mark Pitchford, Cooley’s chief operating officer, said the shift in the economy will affect how his firm moves forward. He noted, for example, that Cooley has identified strategic practice areas that it is not yet pursuing. He declined to say what those areas might be. Are firms worried about the turbulence in the economy? “We’re certainly mindful of it,” Pitchford said. But, he added, “we’re not in a ‘jump in the lifeboat mode’ by any means.” Brobeck, Phleger & Harrison chairman Tower Snow Jr. said his firm also is “not running at the same level we were a year ago,” citing a slowdown in the business and technology and tax departments. “But we’re still busy. We don’t have more people than we can keep busy.” He added that Brobeck wouldn’t have raised associate salaries by $10,000 across the board if it didn’t have sufficient work coming in the door. Snow said the firm is continuing to hire attorneys, though at a more modest pace. Whereas last year Brobeck hired 343 attorneys, he said his “best educated guess” is that this year the firm will add 150 partners and associates, including new graduates and laterals. Snow contends law firms “are less susceptible to a market downturn than most of our clients.” When public offerings are down, he said, M&A picks up, and when corporate work declines, litigation tends to be stronger. Recruiter Matt Feuer added that firms are much more insulated from the vagaries of the marketplace than they were during the recession of 1991 to 1992. “Many firms today have international operations and a more diverse [clientele],” Feuer said. “Diversification is more of a shield.” However, firms without such a shield may have difficulty weathering the economic storm. Oppenheim said more firms have sought his advice on how to liquidate or requested a merger analysis in the last 12 months “than in the prior seven years.”

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