One round of layoffs hasn’t been enough to stem the tide of falling profits at some major law firms.
With the economy in shambles, a growing number of firms are now in their second and even third rounds of cuts, and Orrick, Herrington & Sutcliffe joined that list on Tuesday.
The firm announced that it is laying off about 100 associates and 200 legal staffers from its United States, Asian and European offices. The latest cuts are on top of a round of layoffs in November, when the firm let go of 40 attorneys and 35 staffers.
“We are saddened that we need to do this,” Orrick Chairman Ralph Baxter said in an interview on Tuesday. “But this is part of a comprehensive plan to adapt to a dramatically changed world.”
Baxter said that the global economic crisis now affects nearly all of the firm’s practices. The job cuts were spread among many practice areas and were “fairly balanced” among the United States, Asia and Europe. The first, smaller round of November layoffs was concentrated in the firm’s structured finance and real estate practices, Baxter said. Those first cuts were based on financial results that predated the economic meltdown that began in mid-September.
“When we did [the November layoffs], we hoped we would not have to do anything further,” Baxter said.
But the law firm really began to feel the impact of the flailing economy in November, December and January, which led to this week’s layoff. Though Orrick posted an 8% increase in gross revenue for 2008, profits per partner remained flat, according to The American Lawyer, an affiliate of The National Law Journal. The firm needed to brace for the reality that its clients are being hit hard by the slowing economy.
“It feels as though every time I meet with a client, issue number one is how mightily they are struggling with the downturn in the global economy,” Baxter said.
Orrick’s most recent layoffs demonstrate another trend: Firm cuts generally are getting deeper. Last fall, reductions of 30 or so attorneys raised eyebrows in the legal world. In the past several months, however, firms have shed attorneys and staffers by the hundreds. For instance, Latham & Watkins laid off 190 attorneys and 250 staffers on Friday, and Holland & Knight let go 243 attorneys and staffers last month.
As the number of laid-off attorneys grows, severance packages seem to be getting smaller. The attorneys who were laid off in November from Orrick received five months of pay, while those laid off Tuesday will get three months. Baxter said that three months’ severance is standard at law firms, but Orrick wanted to extend that for the smaller group of attorneys who were let go in November.
Changes are also afoot for the firm’s incoming associate class. Orrick announced on Tuesday that it is delaying the start date for its incoming associate class. Associates would typically start with the firm in the fall of 2009, but half will now start in January 2010, and the other half in March of that year, Baxter said.
Additionally, incoming associates may opt to take a year off and work in a public interest law job for a year before starting with Orrick, which the firm will underwrite.
Baxter said that the firm decided that a delayed start day is preferable to rescinding job offers for incoming associates, which a handful of firms have done.
The delayed start date for incoming associates has a touch of irony, as Orrick had been a leader in the area of associate pay. In 2007, the firm was among the first to pay starting associates in California a $160,000 salary, which was virtually unheard of outside New York.
On top of jobs cuts, Baxter said Orrick is looking at other ways to cut costs. That includes delaying business meetings between partners stationed across the globe, working with vendors to reduce expenditures and consolidating more support functions in the firm’s global operations center in West Virginia. That center handles accounting, billing, word processing, electronic discovery and more.