Big Law is On a Layoff Spree, But This Time, It’s not about the Economy

06/26/13

Big Law is On a Layoff Spree, But This Time, It’s not about the Economy


The legal market is witnessing many layoffs recently. However, this time the layoffs are more geared towards aligning law firm structures to modern corporate practice rather than to combat lack of revenue.

On Monday, when Barry Wolf, the executive chairman of  Weil, Gotshal & Manges announced layoffs of about 60 associates and 110 staff members, he was quite clear about the motive behind the layoffs. Wolf said, "This is not about cost-cutting but about the future of the firm and strategically positioning us for the next five years."

Similarly, when Orrick Herrington & Sutcliffe reduced their 14-member executive staff by eliminating two positions earlier this month, Mich Zulkie, the Chair of Orrick echoed the same sentiments. He insisted that the executive staff was reduced to create "a thinner, more nimble management team." But, in the case of Orrick, cost reduction also played a role in laying off 21 non-secretarial staff and relocating 11 other staff members to a low-rent back office to reduce overheads.

These firms are financially stable. In 2012, Orrick managed gross revenue of $866 million and a profit of about $1.6 million per partner. Weil, Gotshal & Manges, with more than 1,200 lawyers, had a per partner profit exceeding $2.2 million during the same time period. So, it's not all about the money. Basically, law firms are going for a flatter structure and trying to shed the fat. Something big corporate have been doing periodically for decades. Both instances show that the layoffs sweeping across big law firms are being undertaken to streamline organizations and increase resilience rather than cut down costs. The trend is especially being noticed in large international corporate houses to which law firms are catching up.

As times change, the future of big law seems to be dominated more by corporate trade models rather than traditional law firm structures meant to house members of a learned profession. And it is meant to stay.

Surprisingly, despite all odds, big law continues to hire rainmakers in a bid to fuel growth in the face of declining demands for legal services. And one of the worst instances of such a scenario was the recent demise of Dewey & LeBoeuf, where recruiting of rainmakers almost bordered on a Ponzi scheme like model that ultimately imploded and led to turmoil in the legal industry.

Although the National Association of Law Placement (NALP) revealed that big law hired more associates in 2012 than in 2011, the total number of new associates joining big law firms was 3600 against 46,000 new law graduates. Law firm leaders are aware of the big supply of human resources standing in queue and are ready to make the most of an employer's market. This is becoming the best time for them to restructure, lean down and optimize. Welcome to the end of the economic recession and beginning of law firm optimization.