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Tower C. Snow Jr. says he’s learned a simple lesson from New York law firms’ downsizing in the early 1990s. “Short-term gain equals long-term pain,” says the managing partner of Brobeck, Phleger & Harrison, a San Francisco-based law firm that grew aggressively in the second half of the 1990s. Brobeck’s associates can only hope that Snow remembers his words — and that history doesn’t repeat itself. The law firms that grew the most in the late 1980s were often the most aggressive in laying off associates when bad times hit in the early 1990s. And none of those firms grew as quickly as technology company-focused law firms such as Brobeck had in recent years. Snow argued that the analogy is flawed. Still, the numbers can’t be comforting to young lawyers in Silicon Valley. For example, New York’s Fried, Frank, Harris, Shriver & Jacobson grew from 256 lawyers in 1986 to 368 in 1989, only to fall back to 292 lawyers by 1992, according to surveys in the American Lawyer Magazine in those years (see table above). New York’s Milbank, Tweed, Hadley & McCloy grew at 15 percent a year between 1986 and 1989, from 260 to 400 lawyers, but cut back to 325 lawyers in 1995. Firms that grew more slowly, such as Cravath, Swaine & Moore, avoided such declines. Brobeck’s recent growth dwarfs that of Fried, Frank and Milbank a decade ago. Between 1997 and 2000, Brobeck grew from 435 lawyers to 724, an increase of 18.5 percent a year, almost 50 percent more than Fried, Frank grew from 1986 to 1989. Brobeck’s growth was modest compared with that of two other tech law firms. Wilson Sonsini Goodrich & Rosati mushroomed from 374 lawyers in 1997 to 812 in 2000 — an average annual increase of 29.5 percent. Cooley Godward grew at more than 20 percent a year in the same three-year stretch, zooming from 332 to 583 lawyers. Snow admitted that those in the Valley were blindsided by the tech market’s quick demise. “Everybody thought there would be a slowdown, but people thought, ‘Work could fall off by 50 percent, and we’ll still be at or near full capacity,’” he said. “What caught people by surprise was the speed and depth of the deceleration. It stunned everybody: the companies, the investment bankers, the lawyers.” The Silicon Valley firms grew in large part by hiring lateral associates from other firms, a practice Snow said Brobeck has halted this year. Jeffrey D. Saper, a partner at Wilson Sonsini who is on the firm’s management committee, added that his firm has slowed its lateral hiring considerably. Lured by the glamour of being near tech clients, many of those lawyers changed practice areas, said Lawrence S. Watanabe, a partner at Los Angeles legal headhunter Watanabe, Nason & Seltzer. “I’ve seen some labor lawyers [associates] hired as IP lawyers,” he said of the recent hiring boom. Now at the Silicon Valley firms, “You’ve got associates who are absolutely sitting on their hands,” Watanabe said. Even Snow admitted his firm is overstaffed and that Brobeck partners will make less money this year because of it: “We have overcapacity. We’re going to take a capacity hit this year,” he said. He and Saper both said their firms are diversified enough to withstand a downturn. According to Wilson’s Web site, about 430 of its 750 lawyers are corporate and securities specialists; another 75 work in the technology transfer area. Only 150 of its lawyers, or 20 percent, are in litigation, which tends to be countercyclical. According to its Web site, about 35 percent of Brobeck’s lawyers are in litigation. Both Saper and Snow said their firms won’t fire people en masse. Like most firms, Brobeck is getting tougher in its performance reviews, Snow said. “In 1999 and 2000, marginal performers were kept. In 2001, everyone has said, “We’re not keeping them.” Snow said that as a result, Brobeck got rid of between 20 and 25 associates. Associates’ salaries, of course, come out of partner profits. Watanabe said he’s been getting more calls from partners at tech law firms. “We’re seeing a lot of interest on the behalf of partners with tech practices in moving to full-service national practices,” he said. “I think everyone this year will be willing to take a hit. People are sort of holding on this year. I think people will not be willing to take a hit next year.” Non-Silicon Valley firms have been aggressive in hiring partners from the native firms to build their offices in the Valley. Watanabe pointed to McDermott, Will & Emery, which has increased its Palo Alto, Calif., office from 10 to 25 this year by bringing over intellectual property litigators. Many of the New York firms, including Milbank, Tweed; Davis Polk & Wardwell; Simpson Thacher & Bartlett; and Skadden, Arps, Slate, Meagher & Flom have hired lateral partners in the Valley. Milbank’s chairman Mel M. Immergut, whose firm often hires lateral partners, said that recently he’s been seeing more impressive candidates in all practice areas. So even if some firms want to hold onto associates, renegade partners may force firms to lay people off to bolster partner profits. “Firms compete on their ability to recruit and retain people based on published profit numbers,” Watanabe said. “If partners feel that their firms aren’t competitive, they will leave.” Both Saper and Snow said partners at their firms are committed to keeping associates and note that the financial benefits of laying off associates come at a high cost. “You can’t just slash and burn and think that when the market returns, you can come back from that,” Saper said. Other firms are more guarded. “We’re looking for signs,” said a spokeswoman at Cooley Godward, which declined to make any of its lawyers available for an interview for this article. “We’re continually assessing things. We wish we had a crystal ball.” �Copyright 2001, The Deal, LLC. All Rights Reserved

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