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Cooley Godward laid off 86 associates and 50 support staff Thursday, becoming the first Silicon Valley firm to cut lawyers en masse to cope with the region’s economic spiral. The lawyer cuts — which represent roughly 17 percent of the firm’s total associate ranks — will be made firmwide and take effect Aug. 31. Laid-off lawyers were given up to three months’ salary in severance pay. “After careful consideration, over a period of months, the management committee believes that this action is necessary to insure the long-term health of the firm,” Cooley Chairman and CEO Stephen Neal said in a memo to employees. “This year’s drop in demand has been as steep as the 1999-2000 increase,” Neal wrote. “We simply have too much capacity for existing and reasonably anticipated business, and we must deal with that situation.” The layoff ended months of speculation over whether more cosmetic cost-cutting measures — canceling lavish retreats and ending free dinner services — were enough to tide firms over until the economy rebounded. It also erects a psychological tombstone for the Internet-driven boom that fattened firms and partners’ pockets and signals an end to law firm optimism that the economy will make a quick comeback. The Cooley layoff targeted the firm’s younger ranks and the newly hired. Three-quarters of the layoffs came in the corporate practice, and the rest in litigation. The majority of people laid off have been at the firm for two years or less, Neal said. Cooley had already made a number of performance-related terminations prior to the layoff announcement. Though it will not reveal the exact number shown the door, the firm had 688 attorneys Jan. 28 and 650 last week — a difference of 38. Neal said the ranks of associates idled by the technology downturn represent a bigger problem for the firm than an immediate drag on profits. Inactive lawyers sap morale and undermine client confidence that the firm is giving them the best bang for their buck. “You can put less money in your pocket, but if you have a prolonged period of time where you have a bunch of young lawyers sitting in their offices with too little to do, it’s not good for anybody,” Neal said in an interview Thursday. Like many Valley firms, Cooley had bulked up in recent years in response to the booming, dot-com-fueled economy. In 2000 alone, the firm hired 180 lawyers. While other firms have cut staff and trimmed expenses, laying off associates is seen as a last option. But some firms may have no choice, particularly if the economy doesn’t rebound by early 2002. The three most active firms in the securities area, Cooley, Wilson Sonsini Goodrich & Rosati and Brobeck, Phleger & Harrison, bulked up to handle 373 initial public offerings in 1999 and 2000. But in the first six months of this year, the three firms did eight IPOs between them. Average billables per lawyer at Cooley are down 15 percent to 17 percent, Neal said. He would not, however, reveal how far profits have fallen nor give a revenue target for 2001. Last year, Cooley grossed $345 million, with $116.5 million in net income. The bottom line this year also will be affected by the cost of the severance packages, but Neal would not say how much the firm is spending. Partners at Cooley said they regretted having to fire their young hires. “Clearly, this is the hardest thing I’ve ever had to do in my 19 years with the firm, ” said partner Mark Tanoury. “ But I really think this is the right thing for the firm.” The firm did not immediately divulge which offices would face the biggest cuts. Palo Alto, Calif.-based Cooley has outposts in San Francisco and Menlo Park, Calif.; Kirkland, Wash.; and Reston, Va., as well as a pair of offices in Colorado. Neal would say only that the cuts were being made firmwide. The firm said its workforce after the cuts will be 1,369 employees — including 565 attorneys. Proportionally, the largest number of layoffs were almost certainly from the firm’s Palo Alto headquarters, followed by San Francisco. Estimates ranged from 10 to 12 lawyers in San Diego and Reston each, another seven or eight in Broomfield, Colo., and a handful in the firm’s remaining three offices. Lawyers at competing firms reacted with shock when first confronted with the news. But one senior Silicon Valley partner later said that it wasn’t surprising. “We fully expected that someone would be the first to blink,” the partner said. “It wouldn’t surprise me if other firms followed.” The memo that Cooley circulated internally to explain the layoff was flying over the Internet within minutes. Cooley partners were getting it e-mailed to them from colleagues across the country, asking them if it was a hoax. Once the decision was made, Cooley’s top managers spent weeks preparing for the layoff. On Tuesday, about 75 of the firm’s partners nationwide gathered for a conference call. At that time, partners learned what they could and couldn’t say when delivering the bad news to their associates and staff. Then Thursday, at 9 a.m. PST, pairs of partners began to visit each of the 86 associates who were laid off. Each pair of partners included one from firm management. Shortly before 10 a.m., within an hour after the layoffs officially began, Neal circulated the memo to all of the firm’s employees. At that time, partners were free to visit associates personally and explain what was happening. One first-year who was spared said the mood in Palo Alto was somber later Thursday morning. Most of the lawyers there were holed up in their offices, doors closed. Associates at the firm had joked about an impending layoff, and rumors were circulating last week that one was in the offing. “Anybody would be lying who said it’s not something they contemplated as being possible or probable,” said James Fulton, a sixth-year associate who was not laid off. Fulton said he was relieved that it was over and that the firm handled it well. “They didn’t throw these people out on the streets with the stigma of performance terminations,” Fulton said. Joseph Conroy, managing partner at the firm’s Reston office, said it was a sad day at the outpost. Layoffs occurred there, but he would not provide numbers. “We had staffed up for continued growth. … We’re just not going to see that level of growth.” Cooley’s San Francisco office was quiet Thursday. Receptionist Gail Price said the day seemed to be no different than others in the level of activity and incoming phone calls. But she added that people appeared “either very smiley or very grim.” A cluster of secretaries waiting for the elevator spoke in hushed tones about the layoffs. One secretary said the dismissals had been restricted to new associates, but another secretary said she knew of a sixth-year associate who had been cut. One woman leaving the building was visibly upset. She declined to discuss the situation, saying, “You should talk to the people upstairs.” “It’s a horrible day,” said one partner speaking on condition of anonymity. But in announcing the layoffs, he said, Cooley “had the courage not to disguise it.” Related Chart: Cooley’s Head Count Reporter Brenda Sandburg of The Recorder and Jennifer Myers of Washington, D.C.-based Legal Times , an affiliate of The Recorder and law.com, contributed to this story.

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