http://dealbook.nytimes.com/2013/06/24/big-law-firm-to-cut-lawyers-and-some-partner-pay/?ref=business&_r=0
Big Law Firm to Cut Lawyers and Some Partner Pay
BY PETER LATTMAN
Tina Fineberg for The New York Times
The headquarters of Weil, Gotshal & Manges are in the in the General Motors building in New York.
One of the country’s most prestigious and profitable law firms is laying off a large number of lawyers and support staff, as well as reducing the pay of some of its partners, a surprising move that underscores the financial difficulties facing the legal profession.
The leadership of Weil, Gotshal & Manges, a New York-based firm of 1,200 lawyers that counts General Electric and Sanofi as marquee clients and handled the bankruptcy of Lehman Brothers, informed its employees Monday morning about the reductions.
Sixty junior lawyers, known in law firms as associates, will lose their jobs. That amounts to roughly 7 percent of Weil’s associates. Roughly 30 of the firm’s 300 partners are having their annual compensation reduced, in many cases by hundreds of thousands of dollars. And 110 staff employees – roughly half of them legal secretaries – are being let go.
Although publicly traded companies, including Wall Street banks, often cull their ranks during fallow periods, it is rare for large law firms, especially elite ones like Weil, to fire employees en masse.
“While we have been able to avoid these actions in the past, and it is very painful from a human perspective, the management committee believes that these actions are essential now to enable our firm to continue to excel and retain its historic profitability in the new normal,” Barry M. Wolf, Weil’s executive chairman, wrote in an e-mail to its employees.
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 continues to shrink. In the years leading up to the financial crisis, profitability exploded and the number of lawyers expanded at the country’s top firms as demand increased about 4 percent a year. But demand has been flat to down for the past five years, according to several industry reports, and shows little sign of picking up.
Dan DiPietro, chairman of the law firm group at Citi Private Bank, 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. He believes that the profession could possibly experience a wave of job cuts.
“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 synch with the current market dynamics.”
The market dynamics at Weil, whose partners make, on average, about $2.2 million a year, are rather unique. During the depths of the financial crisis, the firm avoided the layoffs that some other firms were forced to make. That was largely because of its pre-eminent bankruptcy practice, which advised both General Motors and Lehman Brothers on their Chapter 11 filings. Those assignments, particularly Lehman, generated hundreds of millions of dollars in fees, not only in bankruptcy work, but also from the ream of litigation that flowed from them.
In an interview last week, Weil’s chairman, Mr. Wolf, said that the firm thought that as the crisis-related work wound down and the economy recovered, it would see a pickup in its “transactional business,” the lucrative practice of advising corporations and private equity firms on acquisitions, as well as performing legal work for stock and bond offerings. But transactional activity at Weil remains soft and has not returned to anywhere near pre-2008 levels.....
