The Latham news is of course all over the place: The WSJ
Law Blog, Above
The Law, The
AmLaw Daily, LegalWeek, and
etc. The figures are, frankly, grim:
- 190 associates laid off, or about 12%;
- 250 paralegals and staff, or about 10%; but
- As of this writing, no partners (of whom there are 550).
- Finally, the start date for the class of 2009 is postponed to December,
with an option to defer to October 2010, in which case the firm will pay
those electing the year-long deferral $75,000 and encourage them to pursue
volunteer work or community service.
One admirable and salutary part of the story is the severance policy associated
with this: Six months salary, capped at $100,000, as well as six months
of health coverage. As Bob Dell rightly says, this is "quite
a bit above market." Indeed, if you believe this
table, it’s double the approximate "going rate" of 3 months. Classy.
So those are the facts. What does it mean?
At the most prosaic level, it reflects the knock-on effects of the global
economy hitting a brick wall. (Actually, it hit the wall so hard that
it bounced off backwards, as the just-revised 4Q2008 GDP numbers for the US
showed,
with a 6.2% contraction.) When the economy experiences that, so do your
clients, and then so does your firm. It is as unfortunately predictable
and seemingly inescapable as one billiard ball hitting another and then another.
This observation is simplistic only to the extent that it ignores how different
firms will be hit in different ways—and how some, based on a delightful
if sometimes random confluence of their practice mix, will dodge the gunfire
altogether. This is a period where "averages" will be particularly misleading.
But
that may be part of Latham’s problem, in a suddenly-unfortunate way: The
simple fact that the firm is so global, and so diversified in its practice
mix, makes it almost the law-land equivalent of an "index fund" representing
the overall contraction in global legal spend.
Next, what absolutely positively must be said is how terribly sad and indeed
frightening it will be for all those affected. Now is not the time when
you want to be abruptly looking for work. "Adam Smith, Esq." is a tiny
tiny enterprise, and for all of you who may be in this deeply unfortunate boat: For
the record, we’re not hiring. But for those of you reading this who might
conceivably have an opportunity to offer, I urge you to act posthaste. The
people affected are not finding themselves on the street for "performance"
issues, nor are they there through any fault of their own. Throw what
lifelines you may have.
Other observations from a management and strategic perspective:
- It is always and everywhere best to do these things in one big whack rather
than through a thousand cuts, or—unforgivably—through "stealth"
layoffs. We can only fervently hope this one whack will be the last,
but as we are learning on pretty much a daily basis, these days no one can
make any promises. - One must assume, although no details on this score have come out, that
the review and cull are "strategically selective," as opposed to 10% across
the board. You will have noticed that all four of the Magic Circle
firms who have announced "redundancies" have made a point of emphasizing
that they were all in the context of re-sizing the firms to (we hope) better
align with what they forecast to be market and client demand. Again,
while no one has a crystal ball, some things are clearer than others, and
I would be shocked to hear that anyone in restructuring has been let go and
equally shocked to hear that no one in securitization has been affected. In
other words, as nasty and "profoundly regret[table]" (Dell’s words) as these
decisions are, you can make them smartly or make them dumbly. I have
to imagine Latham is too well-managed to have done the latter.
Why were no partners affected?
I have a hunch, which Dell obliquely confirms when he remarks that "current
and future client demand would likely require less leverage."
My theory—which I’ll devote more ink to in future—is that, among
many other things, we as an industry are going through our own "de-levering"
period, and that on the other side of this interregnum firms will, by and large,
have lower associate: partner ratios. Many are the implications
of that, presuming I’m right, but Latham seems to be acting as if they think
it’s accurate.
Finally, this morning’s news out of Latham tells us something with all the
emphatic insistence of a fire-truck air horn: Firms are businesses. I
hope that by now that comes as news to no one.
Before firms can live to thrive again another day—which, trust me, they
will—they
first have to live.
Call it what you will (carrying excess human
capacity, being underutilized, supporting fallow and unproductive
assets), it’s simply not viable in a competitive marketplace to have a substantial
proportion of the people on your payroll sitting around with too little to
do.
That is also bad for morale, bad for professional development, unattractive
to talented candidates you might want to recruit, and, finally, less than useless
to clients.
At the moment, understandably and inevitably, we are all focused on the "destruction"
inherent in Joseph Schumpeter’s powerful insight about how capitalism repairs
and reinvigorates itself. It would be much more fun if we could focus
on the "creative" dimension. But not yet. Not just yet.
