The Firms

February 27, 2009 8:24 AM

Latham to Cut 190 Associates, 250 Staff

Posted by Richard Lloyd

Latham & Watkins has confirmed to The Am Law Daily that it is laying off 190 associates, or approximately 12 percent of the firm's associate base. The firm also announced cuts of 250 nonlegal staff, including paralegals. The layoffs are the most dramatic cuts announced so far by an Am Law 100 firm.

After mounting speculation, firm chairman Robert Dell this morning confirmed that the firm had little choice given the current economic climate. "It's with profound regret that we're taking this action," he says, adding that the depth of this recession was unprecedented. "The health of the global economy is likely to remain poor this year and so staffing levels have to be better aligned with client needs."

Latham's 550 strong partnership will be unaffected by the cuts, says Dell, explaining that "current and future client demand would likely require less leverage."

The cuts predominantly affect the firm's U.S. offices. New York, the firm's biggest office with over 350 lawyers, and Los Angeles will be particularly impacted. In London, 12 to 15 jobs are under review.

All those affected are being offered severance packages of six months pay, capped at $100,000, and six months medical coverage. Dell describes the package as "quite a bit above the market."

Latham has been one of the banner firms of The Am Law 100 over the past decade, growing aggressively across the U.S. and around the world. The expansion has been fueled, in part, by its finance and private equity practices.

Speculation had been mounting for several weeks that Latham was due to announce cutbacks. On Wednesday, the blog Above the Law reported that cuts were expected this week although the scale of the layoffs is above most predictions.

Dell claims that accusations of stealth layoffs are "just false" and insists that the cuts will not damage the firm's reputation. "People recognize that when you look around you can see clients and other firms going through this sort of decision," he says. Still, the firm's reputation suffered in the years after the last round of significant cuts in the early 1990s, and the firm's management went to pains to avoid such a move, or to acknowledge the possibility of cuts. In an address to associates last March, Dell said the firm had no plans to lay off lawyers.

"The firm had laid off people in the early 1990s (during the last recession) and, in retrospect, we felt that we should have held on to some of those people," Dell now says.

In addition to the layoffs, Latham is deferring the start date for the class of 2009 to mid-December. It also is offering all those in the incoming class the option to further defer start dates to October 2010. The firm will pay those who select this option $75,000; it is encouraging those lawyers to engage in volunteer or community service projects.

The cuts come off the back of a dramatic fall in Latham's profits in 2008. Profits per equity partner dropped 21 percent from $2.27 million to $1.8 million while revenues fell 4 percent from just over $2 billion to $1.9 billion. Dell still is confident about the firm's business, but again stresses that Latham had an "overcapacity issue that we have to deal with."

Following the news of layoffs at Latham & Watkins, we here at The Am Law Daily were wondering how firms are handling job cuts and what associates are doing after firms let them go.

If you were laid off and are interested in possibly being interviewed, e-mail reporter Nate Raymond at [email protected] with your contact information. Your identity will be kept confidential unless you give us permission to reveal your name.

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I will tell you what's wrong with this picture from my in-house counsel perspective. There is not one new law school grad for whom I would be willing to pay for services at the rates that law firms are charging for these "lawyers" who know nothing about the practice of law. Even prior to the crash of our economy, I have felt very strongly that the ridiculous level of greed displayed by these Big Name law firms and their partners was disgusting, and their mistaken belief that they should pay someone $160-190,000 per year fresh out of law school just because they got the highest grade (yet can't find their way out of paper bag b/c they have no commonsense) was mind-boggling.
First year associates, do you realize that next year, after your $75,000 dollar vacation, you will be on the chopping block b/c you have no real skills to offer? I am your customer, and I am not willing to pay for you!
After having worked w/ several big name firms,including rain-making partners who pay no attention to my needs after they think they have hooked me, and mid-level associates who spend 75-100 hours researching a simple MTD b/c they don't know how to do anything else, I am happily using small to medium-sized regional firms who understand a little more about the practical realities of our economy (in good and bad times), and watch out, because I am also using firms whose attorneys are hired on a contract basis. Those attorneys, in my experience thus far, are well-educated, have real world experience, and have rates that are literally 1/5 of a senior level associate. These contract attorneys are eager for the work and good in their specialty areas. If you Big Name law firms haven't been paying attention to the efforts of ACC, OnRamp, and others, to transform the method of doing business to something that is modern and effective, you had best be doing so. Get back to practicing law in the real world!

You make some very good points, but I find it disingenous for in house counsel who have been complicit in the entire process to be so smug (though it sounds as though you are still pretty junior so you might not have a full picture). It is just as easy for the corporations to become partners with law firms in changing this model, including demanding that shcools teach JD students something worth knowing and useful in practicing the law.

A little history lesson. The entire billable hour issue is directly due to the in house counsel response to legal bills in the 1988 downturn. They are the ones who started hiring outside auditors to audit every single line item and for firms to submit all bills in tenth of an hour increments. Not that the audits weren't warranted, but in house counsel have to take some responsibility for taking their eyes off the ball during the go go years and then laying everything at the feet of the law firms. You might want to take a look in the mirror before you start blaming everyone else.

why would any firm, esp. a large firm lay off paralegals when their billable rate fits the model of providing a skill set at a reasonable price to clients for services performed?

Note to in-house counsel: that partner you hired isn't doing your work -- I am. And he's charging you twice my exorbitant billing rate because you only want to see his name on the bill.

I'm tired of hearing about "1st years not being worth 160k at big firms"...let's talk about the real problem, partners increasing rates constantly and making $2 million a year. Partner profits have far outpaced associate pay, and if the partners don't increase profits year over year, EVERY YEAR then the sky is falling. Why in the world is a firm like Latham laying off 12% of its lawyers when it still makes $2mill profit per partner??? So what if PPP drops 20%, who says they are entitled to a huge increase every year, and why should they make $2mil a year?

You guys are completely avoiding the real issue: the law schools. Third year of law school is completely a waste of time. The salary paid for law professors and law librarians is outrageous. There is no pressure to cut the costs of becoming a lawyer, making it necessary to have such outrageous salaries for first years.

A J.D. is a glorified bachelors. Most CPAs do more legal work and do it better than first year law associates.

If you read Dell's statement carefully, you will note a reference to growth just before the financial crisis struck. Growth? You'd better believe it. Behemoths in the making. I used to work for a law firm in Los Angeles, and I have wondered since at the effect of growth, growth, and more growth on its character. When it was a comparatively small branch of the main office in Chicago, it was a warmer, kinder, nicer place to work. Not my problem, agreed. But recently, before the crisis, I wondered when all the growth was going to be enough. All the big law firms were obsessed with bigger and bigger and biggest. Now it's reality time. There is not enough work out there and won't be for some time, to support the excess in all these law firms. Dell mentions that: no business coming in, time to leave all you add-ons. The thinking in the law firms was the same as the thinking in the banks and brokerage houses: let's make more and more, and more peons, workers, will help us do it. Now it's the swinging door for the troopers. The partners are okay,thank you very much. If their "draw" is seriously affected, they have only themselves to blame. And no one to feel sorry for them, since they could give a hoot about those shown the door. Greed? Overbearing, domineering, money-grabbing species of humanity!

Just another comment about the problem as I see it, and saw it coming. For Latham: "growing aggressively across the U.S..." and "(The firm)"had an overcapacity issue that we have to deal with." With all their legal savvy and experience, they couldn't see this coming? Someone should have taken a look at the history of the dinosaurs.

Not to outstay my welcome here ... but I had to comment on the Junior Associate's comment which brought back memories for me. I worked for a senior real estate partner who had several associates doing his work, submitting their hours worked on it for him to "oversee." One in particular was a brilliant young associate. Not just my opinion- he was being actively courted by the Justice Department at the time. He worked all hours, diligently and competently, and of course his work translated into a hefty bill submitted by the partner. After a verbal altercation about where he stood, actually, in the pecking order, of getting his document taken care of by me, he abruptly decided to accept the offer from the Justice Department. I was pleased for him but sad. Sadder still was it for the partner. On a Saturday morning, a week or so after the Associate had left, I arrived to find the partner alone in his office, devastated. He reluctantly admitted that he had "counted on" the Associate more than he had ever realized. I think that was an understatement. Because I saw the volume of work that the Associate had produced for him. He was more than his right hand. I know that is true of many Associates. They are hardworking, zealous perhaps, conscientious. They are the people you are hiring when you approach a law firm for a partner to do your bidding. It is the Associates, Junior Associates, and sometimes Summer Associates who get it done. But they are the first on the firing line. Someone mentioned $160,000 for a first year Associate. Believe it, most more than adequately do the work for the $700,000 partner. I know. I've been there. I feel for all those at Latham being shown the door while the lawyers sit comfortably in their stuffed chairs. It is a shame.

We're seeing a sea change in the AmLaw 100 market. The pendulum (finally) is swinging away from the aggregation into mega firms that we witnessed over the past 15 years. That model is/was unsustainable. Lateral partners that float between firms seeking only the highest dollar. Profoundly overpaid junior associates who are hired knowing that 1 in 30, maybe, has the slightest chance of partnership and, thus, who behave not much better than spoiled entitled nitwits. Management so obsessed with hours that they divested partners of the discretion to write off junior associate hours (the hours wherein training could occur historically). Associate attrition at up to 25 percent annually. Partnership voting schemes that vest overcompensated prima donnas practicing in today's demand/rate inelastic practice area to collude and essentially dictate the future of the firm. Two-tier partnerships that aggravate the preceding collusion. Greed. The demise of any true firm institutional culture; replaced by consultant-inspired "core values" or similar b.s. propaganda. Weighted partner voting schemes that render those partners outside the top quartile of earners merely glorified employees. Greed. Ridiculous annual rate increases. Rates so ridiculous that drafting a one-page letter can yield a $3k+ client bill. Hopefully, soon enough, press and judicial attention to certain practice areas (e.g., large case bankruptcy) where rates and legal fees have become truly obscene. The AmLaw 100 edifice is crumbling. The Emporer had no clothes. Good riddance.

An idea I heard was that the associates and paralegals should ban together and put together their severance pay and start their own firm billing at a much lower rate and taking all of their former firm's clients.

Latham is a leverage factory, leveraged finance and leveraged associates.

Law firm partners are going to have to do real work for a living and they are not going to have an easy time sucking fees out of $500,000 p.a. bankers.

As a former Latham staffer who was "let go" a few months prior to the latest culling of ridiculously overpaid dead wood, I have very little sympathy for some of the associates given the ax, 6 month's salary and all. The drop in the equity partners' take, however, is just hysterical.

"Oh won't you cry me a river..." Nobody feels sorry for these overpaid former associates. Nobody will feel sorry if the elite mega-firms crumble because they are financially unsustainable in the current economy. The small and middle-size firm will prosper because they don't charge egregious bills, they don't have to sustain outrageous partner draws and they aren't governed by the graduates of the so-called "elite" law schools. Clients want bang for their buck and are, increasingly, taking the attitude they don't give a tinker's damn if you went to Harvard or Podunk State Law School so long as you do their business in a cost-effective manner. It is a change that is LONG overdue!

Some of you need a refresher in market economics. If a businesses profits are declining because they have more employees than work for those employess, then every rational business will lessen the number of employees to the point that most of the remainder are a source of profit, directly or indirectly.
Why is it assumed by so many that law firms should behave differently from other businesses? And why should the partners decide to accept lower profits just to keep non performing associates employed. If you want to be treated like a government worker then government, not private practise (where both the risks and rewards are greater), is the place for you. Or would you prefer a system that rewards each according to their needs and takes from each according to their abilities? I think that was tried in a few places without much success. Of course its unfortunate when anyone loses their job, but in an economically rational world, those sorts of things happen

QUERY whether Latham's and Orrick's laying off of large numbers of Associates (as well as support staff) illustrate that:

(i) in the past, many corporate counsels were willingness to pay unreasonably bills that included high associate rates because they were spending other people's money or putting their interests ahead of their client (i.e. the corporation);

(ii) some law schools have failed to provide their students with the skills needed to actually practice law (as described in the ABA's 1992 MacCrate Report --; this is reflected in many law schools preference for hiring new faculty that have not spent much time practicing law. Nonetheless, many law schools have made improvements in this area by emphasizing lawyering skills, recruiting excellent adjunct faculty and promoting the involvement of students in legal clinics);

(iii) many law firms have not adequately mentored their associates nor are they willing to hire experienced lawyers to work at the equivalent of associate wages -- note that experienced lawyers who work for the government for many years often make less than associates directly out of law school and will not be recruiting since they are deemed not to be "rainmakers"; and/or

iv) many law firms are increasingly concern about not violating the Age Discrimination in Employment Act (and its local equivalents).

The debate about whether lawyers are engaged in a business or a profession has more data with which to form opinions.

Law firm management should ask themselves whether their firms have simply grown too large to operate efficiently. As a result, it is easier for management to fire persons it does not know, particularly individuals who work in satellite offices in the U.S. or abroad.

I think we can all take comfort in the fact that despite the layoffs, PPP will be declining at all these firms.

The market for legal services is shrinking, and competition to provide those services is increasing.

Billing rates will be coming down, and so will profits. And, yes, by Q4 of this year, the process of whittling partners will have begun as well.


The reasons law firms may want to think twice about laying off associates are:

1) As noted above, the laid off associates and staff could start their own, competing firm and have pretty good access to clients, client-decision making processes and, shall we say, skeletons in the shrinking firms closets . . . especially skeletons associated with billing practices toward or comments made about the firm's clients and as to the comments, perhaps especially about the clients' in-house legal staffs.

2) Legal talent is a unique resource and not necessarily replaceable from year to year, cycle to cycle. Dollars are fungible (you are fairly indifferent to whether you get $2 million this year or $2.1 million a year from now), but associates are not.

3) Layoffs affect morale in the remaining staff. Laid-off attorneys find or create better opportunities and then come back to poach the best of what you tried to keep. And they often succeed because in any organization horizontal loyalties bind more strongly than vertical ones. In fact, it is true of you partner. You choose to protect your $2 million and that of your partners over the livelihoods of your associates.

Well, well, well: Looks like the partner whittling has already begun, with White & Case's announcement today.

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