It would hardly be an overstatement to say that the 2008 debacle of Wall Street hit the world of BigLaw like a tsunami. In October of that year, Thelen’s management — which was already on its last legs after its ill-fated acquisition of Brown Raysman only one year earlier — began parcelling out entire sections of their firm. At the same time Heller Ehrman, whose partners had voted to dissolve on September 26, was closing its cafeterias and starting to remove coffee machines from its numerous offices nationwide. Like falling dominoes, one firm after another began throwing as much baggage overboard as possible in seeming desperation. By the end of the month, Katten had laid off 21 attorneys, Sonnenschein 24 and Clifford Chance 20. Even firm captains were jumping ship. Thacher Proffitt’s Vice Chairman lateralled to Greenberg Traurig and Thelen’s Chairman was reported to be in talks to join Howrey. Firms across the board were scaling back and in some cases eliminating their summer programs outright, forcing law students everywhere to consider debt forgiveness programs and alternative careers even before graduation.
Barack Obama’s historic election in November may have provided hope but clearly not enough to turn the tide. McKee Nelson — which had made its fortune on the back of the structured finance boom — lost seven partners to London based Ashurst and then started shedding non-revenue producers en masse presaging its own soon to be demise. Cadwalader, Shearman & Sterling, Brown Rudick, Squire Sanders, Mayer Brown, Dechert, Orrick and White & Case announced associate layoffs in record numbers. By the end of November 2008, White & Case, which had just laid off at 70 associates, declared that instead of spending $750,000 on its holiday bash as it had in the boom year of 2007, it would limit the budget of its 2008 bash to $250,000 — a move which not surprisingly generated significant backlash. Cadwalder partners overthrew their Chairman after declaring his strategy of plunging his firm head first and deep down into the structured finance market an abject failure given the firm’s tanking revenue and profits in the wake of the market’s sudden collapse. Alston & Bird announced that it was offering its partners early retirement, Cravath and Simpson Thacher led the league in slicing year end bonuses to fractions of their previous year levels, and Thelen’s partners ended any question about its viability voting to dissolve before the end of the year.
In the meantime, White & Case declared that it was undergoing a major reorganization, while DLA, Reed Smith and Proskauer announced dozens of layoffs each. Cleary, Dewey, Clifford Chance, Sullivan & Cromwell, Allen & Overy and Milbank all followed Cravath’s lead in slashing bonuses, and as if to add insult to injury, Marc Dreier, the sole equity partner of his 250 New York based firm aptly named Dreier LLP, became instantly infamous upon his arrest as an imposter in Canada, leading almost immediately to the dissolution of his firm as well and 250 more lawyers pleading to be rescued by any still floating BigLaw ship. (Mr. Dreier himself would eventually be sentenced to twenty years incarceration.) Soon thereafter, Thacher Proffitt’s merger talks with King & Spalding collapsed and by the end of 2008, the 160 year old Thacher — a firm which had survived the bombing of its World Trade Center home at the hands of terrorists on September 11, 2001 — would now come to its demise. To those BigLaw players not directly impacted, Bernie Madoff”s multi-billion dollar ponzi scheme seemed a mere drop in the bucket. With all this tumult already in the books, 2009 was upon us and the hatchet was in full force.
During the first days of 2009, a major survey reported that a full two-thirds of major law firm partners were admitting job security fears and seriously questioning the BigLaw business model, Cravath’s presiding partner Evan Chesler leading this charge by arguing that “the billable hour makes no sense.” Linklaters confirmed their bonus cuts, Morgan Lewis switched from seniority-based to merit-based bonuses and Orrick froze associate salaries at 2008 levels. Major firm managing partners reported record low confidence in the economy as they braced themselves for waves of bankruptcy filings. Clifford Chance, still the reigning global champion of the firm wide revenue charts, demanded that its partners contribute 40 million pounds to serve as a life preserver to the firm, Cadwalader claimed a 30 percent plunge in profits and a 14 percent decrease in revenue, US intellectual property boutique Morgan & Finnegan declared that it was on the brink of dissolution after 12 of its 17 partners jumped ship, and Akin Gump admitted that it had let 17 percent of its partners go in order to become more streamlined. January 2009 culminated with Fulbright and Haynes & Boone also announcing salary freezes and an additional 270, 200, 113 and 51 additional layoffs at Linklaters, Morrison & Foerster, Wilson Soncini and Cooley respectively. In total, it was estimated that in January 2009 alone the US legal sector suffered 1300 job losses. To make matters even worse, BigLaw’s ethical image was further compromised as a fourth Milberg Weiss partner reported to prison after pleading guilty to felony kickback charges, his former firm having barely survived its 2006 federal criminal indictment by agreeing to pay the United States $75 million. Seizing the opportunity, BigLaw clients exercised their leverage by insisting that aside from reduced rates and alternative billing arrangements, diversity and work-life balance become the new BigLaw holy grails.
By February, Clifford Chance’s partner restructuring had become public information, McDermott prepared to lay off 149 employees throughout its US offices, Freshfields and Morrison & Foerster froze associate pay, and Latham annouced that its profits had sunk by 21 percent and revenue was down $100 million. The second Thursday of February saw 800 job cuts, including 243 associates and staff at Holland & Knight, 180 at DLA Piper, 144 at Bryan Cave, 74 at Goodwin Proctor, 61 at Cozen O’Connor, 53 at Epstein, Becker & Green and 19 more at Dechert — a grim day by anyone’s measure that may have saved these firms an estimated $100 million but earned the moniker “Black Thursday.” Cravath shortly thereafter announced a 24 percent drop in profits and Allen & Overy confirmed that it had succeeded in cutting its operating costs globally by 9 percent. The bitter pill capping off this dismal month came in the form of Latham’s announcement on the 27th that it was cutting 440 jobs firm-wide.
The hatchet’s momentum carried it unrelentlessly into the first week of March when Dewey, Clifford Chance, Shearman & Sterling and O’Melveny implemented a total of over 530 attorney and staff cuts, only to be followed the next three weeks by a whopping 400 more layoffs at White & Case, 249 at Sidley Austin, 155 at Pillsbury, 122 at King & Spalding, 79 at Blank Rome, and hundreds more at Bingham, Arent Fox, Wiggin & Dana. K&L Gates, Chadbourne, Venable, Paul Hastings, Katten, Jenner & Block, Gibson Dunn, Skadden and Baker & McKenzie combined. In the event anyone hoped otherwise, it was made crystal clear that no longer would even BigLaw equity partnership be a safe haven, Dewey & LeBoeuf leading the battle on this front by slicing the pay of 66 of its partners — some by as much as 80 percent. Also that month, Morgan & Finnegan filed for bankruptcy, and the venerable Philadelphia firm of Wolf Block voted to close its doors as well.
Nor did April bring any relief from all the BigLaw bludgeoning, commencing with Stroock’s decision to cut associate and staff headcount by 10 percent, Mayer Brown laying off 45 more attorneys, and Baker & McKenzie, Hogan & Hartson, Lovells, Alston & Bird and Manatt cutting 124, 93, 79, 52 and 25 jobs respectively with scores more let go at Kirkland & Ellis, Clifford Chance, Linklaters and Schnader Harrison. That same month, Chadboune, Squire Sanders and Nixon Peabody all lowered associate salaries, and our newest crop of lawyers-to-be were notified by such major league players as Ropes & Gray, Wilmer, Goodwin Proctor, Linklaters, Buchanan Ingersoll, Dechert and Mayer Brown that their start dates would be deffered. Skadden, innovative as usual, offered their incoming associates $80,000 to delay their start dates by a year if they succeeded in finding suitable public interest work, and further incentivised already employed associates to take a voluntary “sabbatical” by offering to supplement their leaves with one third of their annual compensation Thankfully, some good was finally starting to emerge from all the BigLaw blood-letting as well. Flex-time programs such as the ones instituted by London based Freshfields and Norton Rose were receiving resounding praise and support among their American counterparts, and more efficient and economical firms were competing effectively for plum assignments by taking advantage of the BigLaw client mandate for significantly lower rates.
But to those legal professionals deemed dispensible, May would prove no less harsh. Allen & Overy and DLA kicked off the month by implementing 450 and 124 staff cuts respectively, while Fish & Richardson laid off 129 (35 lawyers, 85 staff), (Milbank 89 (49 associates and 40 staff), Fenwick & West 22 (16 associates, 7 staff), and Day Pitney 20 (all attorneys). Allen & Overy, MoFo and Pillsbury jumped on the associate deferral bandwagon, and Stroock took the unprecendented step of offering $75,000 to members of its incoming class to reject their offers outright and go away permanently. Dechert followed Dewey on the more senior front by cutting the compensation of 36 of their partners as well, and by this time a full two-thirds of all surveyed BigLaw revenue generators expected their 2009 compensation to decrease from 2008 levels as BigLaw clients had succeeded in lowering their outside counsel costs by 7 percent and the economic forecast remained grim. Further, Reed Smith, DLA, and Kirkpatrick followed Chadbourne, Squire Sanders and Nixon Peabody in reducing US associate salaries. But while partner promotions among the top firms were down across the board, Allen & Overy gave us some positive news in announcing that of the attorneys it would promote that year, 40 percent would be women. Moreover, word of alternative billing arrangements with BigLaw clients to supplement or at times entirely replace the billable hour was becoming routine.
The summer months saw more of a mix of cuts, innovations and embarrassments. Weil Gotshal, McDermott, Kirkland & Ellis and Baker Botts were among the firms to shed more attorneys and staff. Buchanan Ingersoll, Blank Rome, Alston & Bird, Akerman Senterfitt and Troutman Sanders all finally succumbed to the trend of associate salary reductions, and Pillsbury joined Howrey and Orrick in cracking their lockstep salary model for associates by tying compensation to merit and productivity. Clifford Chance admitted that profits per partner had decreased by 37 percent, while BigLaw partners en masse attempted to push back retirement in order to pad their savings accounts. Hogan postponed the start date for students finishing law school in 2010 to sometime in 2011, and Orrick pushed the start of its 2009 summer associate class back to 2012. The number of students invited to participate in summer programs was also reduced at virtually every BigLaw firm — Skadden cutting theirs in half — as was the number of summer associates extended permanent offers. Indeed, no longer were the days of lavish summer associate parties and virtually guaranteed permanent offers for all summer associates. Leading the pack in this regard was Morgan Lewis, which extended permanent offers to only 30 percent of its 2009 summer associates and further expressed an intent to kill its 2010 summer program in its entirety. Meanwhile, Pepper Hamilton extended permanent offers to only half of their 2009 summer associates, Drinker Biddle to two-thirds, and Paul Hastings to three out of four. And by the end of the summer, the firm of McKee Nelson had joined fellow financial crisis victims Thelen, Thacher, Dreier, Morgan & Finnegan, and Wolf Block in the annals of history, with most of McKee Nelson’s survivng lawyers being acquired by Bingham McCutcheon.
As for 2009 summer innnovations, Mayer Brown offered its associates a guarantee of one year of employment in exchange for a $100,000 pay cut, Cadwalader followed Skadden’s lead by offering 34 real estate and structured finance associates unrestricted one year sabbaticals at one-third pay in lieu of layoffs, and Weil Gotshal asked its incoming associates to further defer their start dates from January 2011 to January 2012 in exchange for $75,000 salary plus health benefits provided they obtain a firm-approved public service job. And while firms were reporting that recovering fees from clients was becoming more of a struggle than they had ever before experienced, Indian outsourcing firms aggressively pitched and found many receptive clients for its low cost legal outsourcing services.
September 2009 greeted us with some more good news on the diversity front: Simpson Thacher, for the first time in their 125 year history, elected two women to their Executive Committee. Layoffs continued to be announced in significant numbers though and it was found that the total number of lawyers who had lost their jobs at the 250 largest United States based firms between October 2008 and September 2009 had exceeded five thousand. Helpless career counselors at even our most prestigious law schools were seeing stressed out students in record numbers.
By October. the salient issues in the quickly adapting legal market had crystallized: Microsoft spoke for in-house legal departments everywhere indicating that it would be cutting outside legal costs by at least 15 percent; BigLaw layoffs continued with Wilmer cutting 57 more jobs; Bingham and Reed Smith decided that they would also be reforming their strict associate lockstep system in favor of a merit-based system; King & Spalding and MoFo joined many of their BigLaw counterparts in reducing associate salaries; McDermott, Baker & Hostetler and Schulte were observed taking clients to court to recoup unpaid bills in what appeared to be yet another new trend among major firms hard pressed for revenue; the struggle for work-life balance continued while Quinn Emanuel associates endured a blow from a partner who ordered that unless they were dead they should be checking their Blackberries regularly; Weil’s bankruptcy fees on the Lehman case alone approached $125 million; the debate on the efficacy of legal outsourcing continued to heat up; Sullivan & Cromwell promoted five associates — four of whom women — to partner; DLA announced plans to open an office in SaoPaulo and compete there with American rivals Proskauer, Mayer Brown, Gibson Dunn and Simpson Thacher, evidencing optimism that Latin America and particularly Brazil would continue to be a profitable emerging market; and on the Asian front, Mayer Brown asserted that their 2007 merger with 260 lawyer Hong Kong based Johnson, Stokes & Master and concurrent leap into the Chinese legal market had turned out to be a great success.
As November set in and 2009 finally began to wind down, Linklaters reported a 10 percent revenue drop for the first half of 2009 but nonetheless overtook Clifford Chance as the world’s top revenue producing law firm, Covington froze associate salaries outside of New York, Seyfarth implemented their own associate salary cuts and Reed Smith took matters two steps further in not only cutting salaries for all 51 associates set to start in their US offices in January 2010 by 20 percent, but also by lowering their billing rates by exactly the same percentage and asking their roughly 300 non-equity partners to contribute roughly 15 percent of their salaries in order to retain their partner status. Goodwin Proctor and Drinker Biddle announced dozens more job cuts, and Drinker Biddle, Sutherland Asbill, Kelley Drye and Wilmer became the latest firms to abandon associate lockstep and implement a merit based promotion system, Wilmer however simultaneously expressing its own commitment to diversity by indicating that of the nine counsel it was promoting to partner, five were women. On another desperately needed bright note, Cravath once again was the first major law firm to announce associate bonuses, ranging from $7500 for second year associates to $30,000 for their most senior associates but nothing for first years — a far cry from the peak of the boom years when even rookies at the major New York firms all received $40,000 bonuses and only the sky was the limit at the senior end of the salaried spectrum. Yet noone even whispered a complaint as these diminished bonuses were markedly better than the zeros many BigLaw attorneys were reasonably anticipating. Sadly, one particularly misguided BigLaw associate at Ropes & Gray forfeited not only his year end bonus but his entire legal career upon his arrest and indictment for insider trading.
By the end of the year there was no doubt that 2009 had easily set the dubious standard for BigLaw attorney and staff layoffs, with an estimated 15000 jobs cut at the largest 150 law firms alone — an average of approximately 100 each. But arguably the biggest single BigLaw news story of 2009 came at the end of the year as well: Lovells and Hogan & Hartson celebrated their agreement to tie the knot on what would be the largest transantlantic merger of law firms since Chicago based Mayer Brown hooked up with London based Rowe & Maw in 2002. Hogan Lovells would thus catapult into the top ten firms globally in terms of number of attorneys and revenue, and if their strategy proved correct would result in a distinct competitive advantage in facing the myriad challenges that the ever-increasely interconnected world was bound to face in 2010 and for many more years to come.
And so, 2009 finally came to an end. While major law firm managers have expressed confidence that 2010 promises to be not quite as merciless as 2009, from our vantage point at Hanover Legal it is simply too early to tell. It does feel however to us that the tempest has at least started to subside, and there are thankfully a few positive indicators. At the very least, we assure you that we will remain on board with you in 2010 no matter how turbulent or calm the seas of BigLaw may turn.
So congratulations to all for surviving this bear of a year, and please accept our sincere wishes for a happier, healthier and kinder 2010!