Profit-Pressure-Prompting Firm Leaders to Swing AxApril 17, 2014
The first part of 2014 is looking a lot like layoff season for the nation’s big law firms.
Since the start of the year, seven prominent firms—six of them members of The Am Law 200—have cut their nonlawyer payrolls; at least three also let associates go. All told, the firms shed an estimated 213 jobs, with five out of every six coming from the support staff ranks.
IP–centric Fitzpatrick, Cella, Harper & Scinto and Boston-based Nixon Peabody are the latest to wield the ax, as both confirmed this week that they had eliminated positions.
Fitzpatrick Cella said in a statement that it had trimmed an unspecified number of jobs amid a reorganization of “staff personnel and appropriate associate attrition in connection with our review process.” (Above The Law, which first reported on the layoffs, said the firm had laid off roughly 20 staffers and several associates.)
Nixon Peabody, meanwhile, said it eliminated 38 jobs across its 16 offices last week in a bid to boost efficiency by flattening the firm’s administrative structure and centralizing legal support services. “We are confident these changes will better align our administrative organization with the needs of our business, improve client service and assure our firm is positioned well for the future,” the firm said in an emailed statement.
The cuts by the two firms come close on the heels of a similar move by Edwards Wildman Palmer, which earlier this month eliminated 42 administrative positions and let 10 lawyers go. Edwards Wildman said 10 of its 16 offices were affected. “We are confident that this realignment and the creation of an in-house administrative resource center will enable us to serve clients more efficiently and strengthen the firm in the long term,” the firm said in an emailed statement.
In thinning their ranks, the trio are following the lead of fellow Am Law firms Bingham McCutchen; Kasowitz, Benson, Torres & Friedman; and Husch Blackwell, all of which reduced their payrolls earlier this year.
The six firms have some things in common. According to The American Lawyer’s early reporting, five saw their profits per partner decline last year. Except for Bingham—whose profits plunged 12.7 percent—they all reside in either the bottom half of The Am Law 100 or the Am Law Second Hundred. That group, according to the annual financial survey from Citi Private Bank’s Law Firm Group, lagged well behind the nation’s 50 highest-grossing firms in profitability last year. Of the three firms that made job cuts this month, Edwards Wildman’s profits per partner were down 0.7 percent last month, Fitzpatrick Cella’s were off 4 percent and Nixon Peabody’s declined 8.4 percent.
The widespread falloff in profits, legal industry consultants say, is prompting many firm leaders to zero in on how they can rein in expenses. And despite a general feeling that many had already cut support staff to the bone during the depths of the recession, layoffs are still seen as the quickest way to bolster the balance sheet.
“Some firms are revisiting the extent to which they have room to make more cuts,” says Kent Zimmermann, a law firm consultant at Zeughauser Group. When it comes to making layoffs, Zimmermann adds, the year’s first quarter—when the prior year’s profits have been divided, cash is tight and current-year projections are being reassessed, “is the season for it. Firms are saying, ‘It’s going to be hard to make our goals—what can we do quickly?'”
Dan DiPietro, chairman of Citi Private Bank’s Law Firm Group, says there remains room to cut back across the industry—and law firm leaders know that delaying what may be inevitable is not prudent. “Firms have learned the lesson of 2008,” DiPietro says. “It’s not a good idea to wait too long to get to the right size. And firms are recognizing that they can do things more efficiently. Technology is helping.”
Among the firms that carried out layoffs earlier this year, Bingham trimmed 31 staffers; Kasowitz Benson, whose profits per partner fell 14.7 percent, laid off 30 people, most of them associates, but also some counsel, partners and nonlawyer employees, according to the New York Law Journal; and Husch Blackwell, which experienced a 9.5 percent drop in profits, let go of 25 nonlawyer staffers.
“Our firm, like many of our clients, is being challenged to do more with less,” said Husch Blackwell chairman Maurice Watson in a statement. “Consistent with our commitment to deliver high-value service to our clients, we continuously assess our costs with a focus on improving efficiency and quality.”
Smaller shops are not immune from the pressures. Eighty-lawyer Downey Brand, a prominent Sacramento-based firm, confirmed Tuesday that it laid off 17 paralegals, secretaries and other staffers last week. At least some of the cuts were tied to the departures of roughly 30 lawyers from the firm over the past six months, according to a message emailed to Downey Brand partners on April 9 and obtained by The American Lawyer. “Those of you who have been here for many years know that we have traditionally supported a ratio of approximately one attorney to 0.8 staff members,” managing partner Scott Shapiro wrote. “With the reduction in attorneys, we simply have too many staff members.”
In many ways, DiPietro says, Downey Brand’s experience reflects the trend toward smaller staffs at large firms. According to Citi Private Bank, between 2007 and 2012, the most recent year for which data is available, the ratio of nonlegal staff to lawyers declined from 1.06 to 0.93. Firms, DiPietro says, “need to look at getting those ratios in line.”
At least one Am Law 200 firm is cutting preemptively. In early April, Brown Rudnick, which experienced an uptick in profitability last year, rescinded offers to 10 incoming associates, nearly half of the 23 to whom the firm had offered jobs in New York and Boston, according to the NYLJ. “Market conditions have remained challenging,” the firm explained in a statement. “Demand for legal services has been relatively flat during the last two years, and client demand for first-year associates has declined.”
The current spate of layoffs still pales next to the number of people who lost jobs during the recession. And, for the most part, lawyers have been spared so far. Some 116 firms eliminated nonlegal staff and lawyers between late 2008 and early 2010, according to The American Lawyer’s Layoff List. In 2009 alone, according to the Law Shucks layoff tracker, more than 12,000 people were laid off from major U.S. firms—roughly a third of them lawyers. By 2011, reported layoffs had declined to 439, only 12 of them lawyers.
Four of the firms making reductions this year made significant staff and lawyer cuts during the recession. Nixon Peabody, for instance, cut 56 associate and nonlegal positions in 2009; Husch Blackwell laid off 20 lawyers in 2010; Bingham McCutchen cut 39 lawyers and nonlawyers in 2009; and Brown Rudnick cut 43 lawyers and nonlawyers in 2008.
Ward Bower, a principal at law firm consulting firm Altman Weil Inc., says firms often make cuts around the end of each quarter. He expects more such announcements this summer.
“There are still a lot of firms out there hoping the good old days are going to return, and are finally coming to the realization that that isn’t going to happen,” he says. Bower adds that some firms engaged in a flurry of cost-cutting may be motivated by a desire to merge with another firm. These days, he says, potential acquiring firms routinely demand that the weaker firm make the cuts before agreeing to any deal.