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After months of publicly avoiding it, Brobeck, Phleger & Harrison finally dropped the ax Friday, laying off 54 associates and 85 staff. The move came two months after 82 associates in the business and technology group took up Brobeck’s offer of severance pay to voluntarily leave the San Francisco-based firm. Those moves had been made to avoid a layoff, but firm managers Friday said the continuing recession made cutting more employees necessary. With the latest cuts the firm has 410 associates and 950 staff. Partners also haven’t been immune from the financial turmoil, with several recently being demoted to senior counsel or moved to fixed-income status. Brobeck Chairman Richard Odom did not specify how many partners were affected but acknowledged that “a few” had been moved to fixed income and “a few” moved to senior counsel. Ninety percent of the associate layoffs occurred in the business and technology group. While the firm declined to specify the numbers laid off in each office, it said the Palo Alto and Irvine, Calif., offices and the New York office were hardest hit. Associates will be eligible to receive three months’ severance pay, and staff will be eligible to receive two weeks’ salary for every year of employment at the firm. Brobeck said previous measures to reduce capacity at the firm, including a voluntary sabbatical program and its recent buyout offer, proved insufficient to deal with overstaffing. Brobeck added 200 attorneys to its business and technology group from the beginning of 1999 through the end of 2000. “We kept watching the demand for services and trying to get a handle on whether there would be a turn at the beginning of the year,” Odom said. “We were hoping for clear signs of significant improvement and that hasn’t happened.” The layoffs were necessary, Odom said, “to match our resources with the amount of work that’s available in this economic environment.” Odom, however, said the partner moves were more of a routine matter that is “a regular part of the partner review and compensation process every year.” Odom acknowledged that he thought more partners were shifted to fixed-income status this year than last year. As for transitioning partners to senior counsel status, Odom said this has happened in the last several years, but he thought this was the first year that it occurred in the business and technology group. Asked if any partners were laid off, Odom said some partners leave the firm every year following the annual partner review process. “I can’t tell you what partners will decide to leave,” he said. Brobeck is not alone in fiddling with partnership ranks. Moving partners from equity to fixed-income has “been a well accepted strategy for improving profits per partner for at least 10 years,” said Peter Zeughauser, of the Newport Beach, Calif., legal consulting firm ClientFocus. “I don’t know how much more common it is right now because of the economy.” In the past, he said, firms have shifted as many as 50 or more partners to nonequity status over the course of an 18-month or two-year period. San Francisco-based Pillsbury Winthrop shifted dozens of partners to nonequity status two years ago. And last year McCutchen, Doyle, Brown & Enersen, also based in San Francisco, created a new class of partners that draw a mix of salary and profits. As for the associate layoffs, there was mixed reaction at Brobeck on Friday. “The firm is managing to a worst case scenario just as the economy is improving,” said one partner who spoke on the condition of anonymity. “It doesn’t make sense.” Corporate associates in Palo Alto said their workload has been increasing. “It was definitely not at the level it was in 2000 but it was getting busier,” one associate said. “Even if things were going gang-busters,” another associate said, the layoffs “may have been done to adjust capacity size” and position the firm for an upturn. “This is not a dramatic cut,” the associate said, adding that it is in line with what other firms have done either through layoffs or performance reviews. “All firms are equally guilty, but Brobeck tried to stick with its associates longest and didn’t do scapegoating” by saying cuts were due to poor performance. In the last six months several San Francisco Bay Area firms have announced layoffs. Cooley Godward was the first to do so, dismissing 86 associates in August. Pillsbury, Gray Cary Ware & Freidenrich, Crosby, Heafey, Roach & May and Skjerven Morrill MacPherson are among the firms that followed Cooley’s lead. Former Brobeck Chairman Tower Snow Jr. said repeatedly that there would be no layoffs while he was at the helm. The day after Odom succeeded him as head of the firm, Brobeck offered corporate associates a deal to voluntarily leave the firm. In the meantime, Brobeck released its annual revenue and profit numbers for 2001. They showed a steep plunge in partner profits from $1.17 million in 2000 to $660,000 last year. Gross revenue was also down from $476 million to $447 million. One industry insider said he expects additional layoffs both at Brobeck and Cooley. Asked if Brobeck is having a tougher time than Cooley and Wilson Sonsini Goodrich & Rosati, its tech-focused competitors, he said Brobeck probably had more attorneys handling emerging company work. “I don’t think Brobeck is doing worse,” he said, adding that it now “has a completely different view of the world than under Tower.”

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