Law Shucks

This Week in Layoffs – 11/6/09

lawshucks — Sat, 07 Nov 2009 01:44:25 +0000

Pic: U. Chicago

It was pretty hard to miss this week’s big news: unemployment crashed through the 10% barrier, hitting 10.2% in October – the highest level since 1983 (and, of course, worse than predicted). Underemployment also hit record levels, with the number of self-reported disenfranchised and under-utilized people reaching 17.5%.

Republicans jumped on the numbers as a sign that Obama’s package has failed, and the White House countered that it has saved almost 700,000 jobs. But that claim doesn’t even come close to addressing the original estimates and is completely unmeasurable. Still, the administration is reconsidering ideas it had previously rejected, like a highway bill and a business tax credit for new hires, even as they ask for two versions of a budget: one with flat spending and another with a 5% cut.

Law firms got their place in the MSM sun this week, as Bloomberg used a former law-firm employee as an example of increased migration to areas perceived as having jobs:

Some people are pulling up stakes and moving to where they think the job prospects may be brighter. Beth Rubin, 41, lost her position as a receptionist at the law firm Goldstein Bershad & Fried, PC in Southfield, Michigan, in October. The resident of Ferndale, a Detroit suburb, is now selling her furniture and moving to Georgia. “I’m looking to get a job in Georgia, and I don’t know about the job market there, but I can tell you Michigan is horrible,” Rubin said in a telephone interview.

Of course, anything has to be better than Detroit.

More on the highs and lows in the legal sector, after the jump.

Of the 190,000 jobs lost in October, 5,800 were in the legal sector (seasonally adjusted). The Law Shucks analysis of law firm layoffs in October tracked eight firms laying off 221 people (61 lawyers, 160 staff). That was actually fewer than September.

November is already looking worse, though. Just one week in and four firms, Dickstein Shapiro, Day Pitney, Goodwin Procter, and Clifford Chance, have had layoffs reported.

The American Lawyer cautions that there is at least one more major obstacle looming: collections.

A difficult year is about to get harder. It’s the start of collection season for law firms, and the normal Christmas rush seems destined to run smack into fresh demands for deeper discounts. Adding a shiver of fear to those events are continuing rumors of coming partner bloodbaths. The glib talk revolves around two purported problems: some partners really have had little work all year, and some firms have done a poor job of keeping their members informed of just how far off budget the firm is. Dollops of pain seem likely to fall on many heads.

Layoffs have become just one tactic of many for firms. Deferrals remain another hot topic as firms fervently wish for their problems to be solved for them, if only they can procrastinate long enough. Winston & Strawn is one firm employing the head-in-the-sand method (combined with a de facto salary cut by giving a below-market stipend), as it announced it will further put off its incoming associates’ start dates. We had to laugh when we read that Shearman & Sterling preemptively announced the deferral stipend for the graduating class of 2010.

And even when firms proclaim that they’re proactively going out and addressing the issue, execution falls short. Case in point: Morgan Lewis and its announced intention to move off lockstep. Eventually. Despite seeming to have a plan over the summer, the firm has since shelved any change in its compensation structure indefinitely. This, by the way, is another example of why large law firms should hire professional (non-lawyer) managers.

The other idea being tossed about, because it reduces cost without involving much unpleasant disruption (and is therefore palatable to lawyers) is salary rollbacks to 1998 levels. If we recall correctly, that would be a base of $97,000. We’re more certain that late 1999 was when Gunderson Dettmer set off the arms race with the bump to $125,000 for the class of 2000 (back when “class of” meant both the year in which the person graduated and started working) and $20,000 bonuses for first years. In any event, that number was pulled out of thin air by a consultant who works for law firms, so take it with a grain of salt.

Still, it wasn’t all bad.

Last week, we closed with optimism that there were good reasons for firms to pay bonuses this year, and we were right. On Monday, Cravath announced bonuses, and late on Friday, Cleary matched. Interestingly, there has been grousing from both sides: some claimed that bonuses were in poor taste this year; others that they were too meager.

We threw in our two cents with The Case for Bonuses, which fleshes out the points we touched on: they’re an important morale booster in this difficult year; and clients’ year-end results are going to be extremely good.

All told, major law firms laid off 144 people this week (41 lawyers, 103 staff).

The Case for Bonuses

lawshucks — Fri, 06 Nov 2009 11:37:28 +0000

Pic: Sweet Awesome Tours

Last week we mentioned in passing the possibility of bonuses:

Still, there’s certainly reason for those who have survived this brutal year to believe that they’ll get a little something extra for the effort this year. At Law Shucks, we’re counting on two factors outweighing (if not at least counterbalancing) the rough year for firms: bonuses would be a strong signal that the firms have kept the people they really want, and want them to stay; and the S&P 500 is up 14% year-to-date, even after this crappy week (S&P down 4%). While we’ve said all along that even though most of the profit this year has come from the expense side, those are still good results for clients (and even better counting from the March lows).

That was based on earlier reports that DLA Piper had announced that something would be paid and Slaughter & May’s announcement of five percent bonuses.

Since then, Cravath announced its bonuses and that opened the floodgates for the naysayers.

After the jump, we rebut and make the case for bonuses.

We were actually pretty surprised by the negativity following the announcement. Much of it goes back to a New York Law Journal piece, which reported

The head of one major New York law firm, who requested anonymity, said he was “quite honestly surprised that a major New York firm was paying bonuses this year.”

The partner said he would expect a negative reaction from clients on “any bonuses being paid in the current economy.” He said he expected that a decision to pay bonuses “would have been deferred for some number of months.”

Cravath doesn’t exactly have clean hands, with stealth layoffs of 25 lawyers reported back in June (which was actually pretty late in the year for something like that to come out). But that’s all the more reason for bonuses.

Morale is at an all-time low right now. Whether a firm has laid anyone off or not, retained associates are constantly struggling with the fear that the next layoff is just around the corner. The key message firms have to get across to their retained associates is that they have been retained for good reasons – the firm values them and wants to keep them. It’s not enough to be quiet right now and rely on the abysmal market conditions to serve as a retention program.

Bonuses, frankly, go a long way toward buying back some of the goodwill that was lost – even more so for goodwill lost to stealth layoffs, which we think are even worse than being forthright about market factors and tough choices.

Bonuses also signal that the firm is healthy and doing well enough to pay them, which not only improves morale but preempts potential defection of the most-valued, yet disgruntled, attorneys who do happen to have options.

Retained associates are also working pretty hard right now. First, they’ve had to pick up whatever work was left by their laid-off former colleagues, which is never pleasant. No matter how little it is, it’s always difficult to step in the middle of someone else’s deal and add it to your own workload. Second, work is picking up right now. Take a look at what Cravath has been retained on recently:

$44 billion sale of Burlington Northern railroad to Berkshire Hathaway;
$643 million sale of Nuvox to Windstream;
$4.5 billion acquisition of Black & Decker by Stanley Works;
CBS as a selling shareholder in National Amusements’ $312 million offering;
Unilever’s sale of part of its stake in JohnsonDiversey;
$341 million acquisition of Buscape by Naspers in Brazil; and
$8.4 billion sale of ACS to Xerox.

That’s all since Labor Day and doesn’t include any of the litigation.

So when you’re exhorting your people to “do more with less,” you’d be well served to show your appreciation.

The other factor to consider is that on the whole this is going to be a very good year for many clients. As we mentioned, the S&P is up more than 14% for the year. While we don’t think the numbers are particularly bright in the long-term (again, the profit is almost entirely from costcutting, not from revenue growth), those are still very impressive results. How much worse for morale will it be for people to look around and see how well their clients did (whatever the reason) and not get to wet their beaks a little? And how are they going to feel when they see Wall Street bonuses up 40%?

“I must of course be sensitive to the views of many stakeholders that bankers are paid too much,” said John Varley, Barclays PLC chief executive, in a speech this week. Still, “our shareholders and our customers expect Barclays to field the best people we can.”

“Our objective is to pay the minimum compensation consistent with competitiveness,” Mr. Varley said.

Paying the bonuses is, as always, a further investment in keeping the people firms want to keep.

Don’t get us wrong, we’re actually not in favor of bonuses most years. Prior to 2000, they were almost unheard of, then firms got carried away, overreacting as they usually do when it comes to these things. No bonuses should have been paid at all in 2001 (although that year there may have been a similar imperative to pay one for morale purposes), 2002, 2005, 2007, or last year. Those were just flat out bad years. We’ll save our screed on the sense of entitlement that quickly set in for another day.

This year is different. This year bonuses should be paid because the firms have some serious fences to mend.

Quick Shucks – 11/2/09

lawshucks — Thu, 05 Nov 2009 22:00:00 +0000

Ropes’ UK team visits US HQ for City powwow | News | The Lawyer – It's a reunion for the former White & Case lawyers.
Law.com – Fired Associate Launches Mimic Site to Trash-Talk Firm – The guy was fired five years ago. Surely it couldn't have taken that long to come up with this brilliant career-limiting plan.
The Ann Arbor Chronicle – Washtenaw Jail Diary – Compliments of a tipster. Well written account of an inmate's time in a Michigan jail. Serialized from a defunct twitter feed (follow @lawshucks!)
Rise If You Must – Completely off topic, but awesome. Happy Halloween
The Donors Choose Threepeat Is Complete – Hopefully you followed our lead and participated.

Quick Shucks – 11/5/09

lawshucks — Thu, 05 Nov 2009 20:00:10 +0000

lawjobs.com Career Center – Some Deferred Associates Take the Corporate Route – More deferral stories. Looks like some firms are doing OK pawning the deferees off on corporate clients. Proskauer has placed 6 of 72, Orrick 5 of 45, and Weil Gotshal 13 of 85.
Former DLA, Duane Morris Partner Facing Forgery Trial in Singapore – If faking paystubs to get a higher salary isn't "personal gain," then we have a completely different understanding of the expression. He was also previously at White & Case and Baker & McKenzie.
The Deferred: Go West, Young Lawyer – Yet another tale of a deferred associate, this time from Kelley Drye.
lawjobs.com Career Center – Deferred Associates ‘Hit the Ground Running’ at Temporary Positions – More tales from the front lines of deferrals.
Berkshire to Buy Burlington Northern for $34 Billion – DealBook Blog – NYTimes.com – Nice to see Charlie Munger keeps sending business back to his old firm.

The Month in Layoffs – October 09

lawshucks — Thu, 05 Nov 2009 02:46:50 +0000

Layoffs at major law firms were down in October after the brief uptick in September.

However, there were confirmed stealth layoffs and layoffs without official numbers reported, as firms inexplicably continue to try to be coy.

The charts after the jump.

Layoffs remain at low levels. In fact, October’s 221 reported layoffs are fewer than in any of the 10 worst layoff days this year (232 on March 10).

Layoffs were reported at eight firms in October, although the tallies were only confirmed at five: Cooley Godward (58 total / 0 lawyers / 58 staff); Paul Weiss (49 / 0 / 49); Foley & Lardner (39 / 39 / 0); WilmerHale (57 / 0 / 57); and Drinker Biddle (22 / 22 / 0). Numbers have not been provided for Crowell & Moring, Akin Gump, or Nixon Peabody.

Only seven firms reported layoffs in September.

Taking those three firms out of the equation, the average layoff size in October was still smaller than September, and well off the peaks of the first quarter.

One interesting theme in October was that the reported layoffs at major firms were all American. If memory serves (for some reason the AmLaw 100 webpage is unavailable as we write this), all eight firms were in the top 100 firms by revenue.

The weekly analyses for October are:

All told, 221 people were laid off in October, of which 61 were lawyers and 160 were staff.

11,953 people (4,535 lawyers, 7,418 staff) have been laid off by major firms this year.

Quick Shucks – 10/30/09

lawshucks — Wed, 04 Nov 2009 22:00:00 +0000

BankruptcyBill.us » Blog Archive » Bankruptcy Bill #21 – Fantasy Bankruptcy #2 – We've said it before. If someone comes up with real fantasy bankruptcy, we'll play. Miller is obviously #1 overall, but do Goldstein and Karotkin cancel each other? Sort of like Texeira stealing MVP votes from Jeter or vice versa.
It’s Official: Fairey Lawyers Want Off Case – Turns out they're not just trying to get off because Fairey lied. Jones Day is ready to step in, but the AP's Latham team has said they'll oppose any change.
Experts Agree: Chances of Governor’s Message Being Random Are Tiny – Lowering the Bar – Awesome.
Law.com – Heller Creditors Seek $150 Million, Detail Firm’s Failings – Should lawyers at Baker Botts and Baker & McKenzie be concerned that two consulting firms say Heller was better-capitalized than either of those firms?
U.S. and British Law Firms Near Merger – WSJ.com – Hopefully they spoke to some of their friends from Clifford Chance and Rogers & Wells. Good luck, you're going to need it!

Quick Shucks – 10/29/09

lawshucks — Tue, 03 Nov 2009 14:37:50 +0000

Law.com – Deputy Assistant AG Fired After Being Caught in Cemetery With Stripper – He was night putting. Just putting. At night. With the 15-year old daughter of the dean.
Treasury throws open banking crisis work to other City firms – but who will pitch? – Law Central – Times Online – WBLG – Slaughter & May (the English Wachtell) has had a 2-year run that's coming to an end, but other Magic Circle firms might not want the work due to either conflicts or low fees.
A Series of Unfortunate Events Leads to $1.26 Billion Judgment – Law Blog – WSJ – Woops
Lawyer’s $900/Hour Arbitration Fee Angers Transit Board Members | ABA Journal – Law News Now – The Weil Gotshal lawyer will donate his fee (but not the firm's full fee) to charity.
Ex-Anheuser Exec, a Lawyer, Sues Over Alleged Pay Bias, ‘Frat Party’ Atmosphere | ABA Journal – Law News Now – Frat party atmosphere at Bud?

This Week in Layoffs – 10/30/09

lawshucks — Sat, 31 Oct 2009 02:33:49 +0000

Pic: U. Chicago

Last week we wrote that jobless claims were higher than expected and that predicting anything with any degree of confidence seemed pointless. This week, the number of people receiving unemployment benefits was lower than expected, the lowest levels in seven months, and that was before announcement that benefits will be extended again. Still, the best that can be said is that the cuts are slowing.

Companies are cutting fewer jobs as they see more evidence of a recovery, helped by government stimulus efforts and less weakness in housing and manufacturing. While a separate report today showed the economy expanded for the first time in more than a year, a rebound in hiring may take longer to materialize.

So while things bounced around unpredictably in the broader market, we had two notable announcements in law-firm innovations this week, so we’ll cut right to them after the jump.

Kaye Scholer is the big newsmaker this week because the firm has gone so far off the reservation. The announcement that half the class will be starting on a normal career path and half will be in a captive pro bono program came out of left field and hasn’t been particularly well received, especially by those affected. It’s laudable that the firm is being creative and the attorneys involved at least won’t have to worry about finding a non-profit job to justify a stipend. It’s amazing how difficult it is to find someone to accept free labor these days. But as many have noted, there are pretty significant downsides, including the late notice, the petty clawback of the $10,000 salary advance (which goes from 6% of first-year comp when accepted to 16%), and the fact that people will be forced to work in New York City with its ultra-high cost of living, rather than finding work in a cheaper locale more suited to the $60,000 salary.

Reed Smith also broke new ground this week (when talking about major law firms, the bar for innovation is pretty low), with its CareeRS™ program. Associates will now be lumped together in bands, junior; mid-level, or senior, depending on career progression. The example is the third year who has progressed rapidly may be a mid-level while the fifth year who takes another path may still be classified as a junior. Why does neither of those examples seem appealing? Partners seem incentivized to puff the associates into the next band to get the billing bump, so any quasi-presentable second year will now get billed as a mid-level a year or two earlier. Clients will surely love that. Meanwhile, Reed Smith is keeping people around for five years who haven’t yet performed at a level achievable by a third year (or more junior) attorney? That seems equally unlikely.

Foley Hoag will start charging associates for attorney development – how else do you describe a paycut with that as a stated goal? The affected attorneys also get to subsidize the firm’s recruiting (of other lawyers) and retention efforts. We’re not sure exactly how a paycut facilitates retention, though.

Don’t get us wrong, we believe in pay-for-performance, but the baseline has to be fair and clear, and premier performance has to really be compensated. Too often the baseline gets reset to a low level but the bonuses never materialize.

That drifting away from lockstep is going international: major Australian firms are also considering merit-based compensation.

For those interested in the market, Texas Lawyer has done a roundup of that state’s firms’ activities – it’s just a microcosm of what we’ve been reporting for months. Headcounts down, no attrition, deferred start dates, and salary cuts. The piece does have one good example of lawyer logic, though:

In the Texas offices of New York-based Weil, Gotshal & Manges, the majority of the firm’s new Texas associates, nine of 15, have voluntarily decided to take the firm’s offer to delay their start dates until January 2011, says Glenn D. West, managing partner of the firm’s Dallas office. Of the remaining new associates two are starting this fall and four are starting on Jan. 19, 2010.

“It’s a way to address the disconnect that all law firms have experienced between the incoming classes and the lack of attrition that occurred over the last 12 to 18 months, compared to prior years,” West says. Law firms hire based on certain assumptions of historical ratios of accepted offers and historical attrition, he says. With lower associate attrition rates due to the ailing economy, the firm has more lawyers than expected, he says.

We’ve said it before and we’ll say it again: deferring associates isn’t “addressing” anything; it’s procrastinating. There will be another logjam next year and every other year until the problem is actually addressed – by rescinded offers, drastically reduced incoming hiring, or an unlikely explosion in demand. The fact that so many people “voluntarily decided to take the firm’s offer” is more a commentary that they’d rather get paid more than most Americans to sit around and do nothing for a year than anything else (not to mention we question the voluntariness of the whole thing).

Summer associate offer rates, and offer rescissions, don’t count as layoffs to us, although they probably feel that way to the affected individuals. McGuire Woods is taking advantage of the lousy market by trickling offers out based on its own needs, knowing that few people have options.

Ever the optimists, we close with the subject that fills associates’ minds this team of year: bonuses. DLA Piper has announced that it will be paying something, as has Slaughter & May, although it’s so low (five percent) that we will no longer refer to the firm as the English Wachtell until that is corrected (that would probably be a fine result at most firms this year, but we expect more from Wachtell). Still, there’s certainly reason for those who have survived this brutal year to believe that they’ll get a little something extra for the effort this year. At Law Shucks, we’re counting on two factors outweighing (if not at least counterbalancing) the rough year for firms: bonuses would be a strong signal that the firms have kept the people they really want, and want them to stay; and the S&P 500 is up 14% year-to-date, even after this crappy week (S&P down 4%). While we’ve said all along that even though most of the profit this year has come from the expense side, those are still good results for clients (and even better counting from the March lows).

Who knows, if the bonus is big enough, maybe you can buy yourself an original tasting room from a real Scottish castle.

Just one major firm had layoffs reported this week: DrinkerBiddle, which laid off 22 associates. They’re also likely moving off lockstep.

Again this week, we’ve got a few smaller employers that don’t qualify for the Layoff Tracker but who have laid people off:

The Western Environmental Law Center has laid off two lawyers and two senior staff members;
Allen Matkins laid off at least two lawyers and imposed a second salary cut; and
Las Vegas firm Jones Vargas has laid off one lawyer and eight staffers this year.

22 people were laid off by major firms this week (all lawyers).

221 people (61 lawyers, 160 staff) have been laid off by major firms this month.

11,953 people (4,535 lawyers, 7,418 staff) have been laid off by major firms this year.

Yellowstone Resort Bankruptcy Items on Auction – Must See to Believe

lawshucks — Thu, 29 Oct 2009 10:18:35 +0000

Remember when we told you about the guy who would rather flip a coin than split the difference?

He won that flip (and saved himself $3.75 million), but things haven’t been going so well since. The coin flip was about the fee on a $375 million loan for the development of the Yellowstone Mountain Club, which ended up being a disaster that only got worse when the developer, Tim Blixseth, and his wife started feuding. Who knew building an ultra (see details after the jump) posh resort as the economy cratered wouldn’t work out?

After the jump, some of the items for sale in an auction that blows away the Lehman sale.

Credit Suisse certainly didn’t see it coming. The bank had done more than $3 billion worth of resort deals when this one cratered in spectacular fashion. The Atlantic recounted the whole mess back in a May piece entitled, “Greed, Bankruptcy, and the Super Rich.” The NY Times piled on with a long piece about the “shenanigans.”

Credit Suisse came up with a plan that would have protected some of its investment, but the Montana bankruptcy judge as having none of it.

The trial was quite a spectacle. Under Kirscher’s firm hand, the bankruptcy process compressed into weeks complex litigation that would normally take years. Kirscher, feeling pressure to make a decision and clear the way for an auction of the club, issued a partial ruling that minced no words about Credit Suisse’s behavior, blasting the bank for acting out of “naked greed” and making a “predatory” loan with total disregard for the consequences. He stripped Credit Suisse of its first lien position, a rare act in bankruptcy court.

CrossHarbor Capital Partners ended up buying the assets in July and has put them on the block:

The items that were supposed to furnish “The Pinnacle,” the resort’s never-built home that would have gone on the market for $155 million, will be auctioned off at Red Baron Antiques in Atlanta Nov. 6 through Nov. 8. According to the Bozeman Daily Chronicle, the more-than 300 items may yield $8 million or more. The auction will feature such goodies as a cased knife display, a pair of“Flamboyant [sic] Gothic throne chairs” and a “tasting room” originally from a Scottish castle.

But who would buy such things, and why?

“People buy this kind of furniture when they want you to know they’re rich,” Red Baron President Bob Brown told the Chronicle. “You can’t put $100 bills on your wallpaper, so that’s what you do.”

Ahh, of course.

Not a whole lot of BigLaw on this one, but there’s some from the bankruptcy. Skadden’s Evan Levy, Robert Saunders, and Mark Chehi represented creditor Credit Suisse (which was on the losing end of that coin flip).