Tuesday, June 25, 2013
As you may have heard, NYC white-shoe law firm Weil, Gotshal & Manges announced yesterday that it was laying off 60 associates, 110 support staff and reducing the pay of some partners due to a decline in business. In an article covering the story in the New York Times, the Chairman of the Citi Private Bank law firm consulting group noted that Biglaw in general has not fully recovered from the Great Recession and that there are still too many lawyers chasing too few jobs. He predicts we'll see more layoffs from several firms in the not too distant future.
An excerpt from the article:
. . . .
The “new normal,” in the view of Weil’s management and echoed by legal industry experts, is that the market for high-end legal services is continuing to shrink. Dan DiPietro, chairman of the law firm group at Citi Private Bank, said he believed that the profession could experience a wave of job cuts. He said that there were too many lawyers at the country’s largest firms, estimating the excess capacity at as much as 10 percent of the lawyer population.
“My guess is that a good number of firms have been thinking about right-sizing and waiting for someone to provide them cover and we’ll see more of these moves,” Mr. DiPietro said. “As difficult as layoffs are, it seems that they will be necessary for some firms to get in sync with the current market dynamics.”
Those market dynamics have shifted starkly from the boom years leading up to the financial crisis. Pre-2008, profitability exploded and the number of lawyers grew at the country’s top firms as demand increased about 4 percent a year. But demand has been flat to down for the last five years, according to several industry reports, and shows little sign of picking up.
. . . .
Among the main factors hurting law firm profitability is that corporate clients have become stingy. Until recently, pricing pressure barely existed for premium legal services. Decades ago, clients would receive a bill with only a lump sum and the statement “for professional services rendered.”
But today, big corporations, facing pressures of their own, have clamped down on legal expenses. They have beefed up their in-house legal staffs and perform much of the work themselves. They are demanding that for routine assignments like document discovery, work be sent to outsourcing firms and contract lawyers rather than given to expensive associates. And they ask for discounts or capped fees at places like Weil, which charge more than $1,000 an hour for some partners’ work.
. . . .
Mr. Wolf of Weil said that while layoffs would help the firm’s profits, the move was not motivated by reducing expenses to enrich partners.
“This is not about cost-cutting but about the future of the firm and strategically positioning us for the next five years,” Mr. Wolf said.
Several industry experts applauded the move. Peter Zeughauser, a law firm consultant, said that many firms were in denial about slack demand, and Weil’s cutbacks could pressure them into getting leaner.
“We have been telling our clients about these economic realities for some time,” Mr. Zeughauser said. “Weil is a bellwether firm, and this will be a real wake-up call.”
Continue reading here.