- As the novel corona virus brings business to a standstill, large law firms are considering taking action to support cash and maintain profits.
- The measures considered range from general wage cuts to downsizing. This comes from sources that have direct knowledge of the matter, including company chairs and their advisors.
- A law firm chairman in one of the country's 50 most successful law firms said that many law firm leaders are considering "right sizing for the new world," with measures that would affect both lawyers and employees.
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As the novel corona virus continues to stall, large law firms are considering taking measures to support cash and maintain profits.
The steps being considered range from general wage cuts to downsizing, according to those with direct knowledge, including company chairs and consultants.
"We are resisting both approaches for now, but will have to reevaluate them in late April," Mark Stewart, chairman of Ballard Spahr, a Philadelphia-based law firm, told Business Insider in an email.
"The comparison is, as you would expect, that most companies cannot afford to lose top employees," he said. "We stuck to most of us during the recession and that has proven to be a smart strategy."
Stewart's assessment that he would review the results of the accounts in late March before taking any action was confirmed by other company chairpersons Business Insider spoke to, although others refused to speak on the file.
Another law firm chairman in one of the country's 50 most successful law firms said that many law firm leaders are considering "right sizing for the new world," with measures that would affect both lawyers and employees.
"Companies are modeling worst-case scenarios, including a possible 50% or more reduction in billable hours over the next three months," said Kent Zimmermann, law firm advisor to the Zeughauser Group, in a text message.
"Almost everyone I've had contact with in more than a dozen large companies in the past two days is considering every option to keep their companies as resilient as possible."
This includes possible layoffs, reduced partner salaries, deferred spending and cuts in discretionary spending. "Many also talk to banks about their credit lines."
"A moral dimension"
Who exactly does what is less clear, since law firms generally protect their private management decisions and are perceived as ruthless in the face of the global pandemic and urge large companies in Washington to hire people.
Partners from many companies, including Paul Hastings, Morgan Lewis, DLA Piper, and Blank Rome, declined to comment or failed to respond to a request for information on how to deal with the crisis.
Management decisions are tricky as these law firms are among the richest in the country, with partners in top law firms cashing seven-digit paychecks, while employees – secretaries, receptionists, event planners, and others – earn more modest five-digit livelihoods.
"This will have a moral dimension," said Bruce MacEwen, an independent law firm advisor on his website, Adam Smith Esq. "Are you going to try to do the right thing or the right thing?"
MacEwen said that he would advise companies to implement general wage cuts instead of staff cuts, as these reflect what he called the "common victim."
"I think it is much more humane and it is better to ask everyone to cut their wages by 10, 20, 30% than to say OK, 10, 20, 30% of you have to go so that everyone can earn 100%. "
Other law firm partners and their advisors expressed similar concerns about the type of message a staff cut would send overall to the market and their firm internally.
William Brandt, law firm adviser on restructuring at Development Specialists Inc., said companies that are likely to be remote for most, if not all, of April and possibly beyond have started reducing their administrative burdens through downsizing.
This is an easier task, since remote work is better than most companies would have imagined.
But he said companies should seriously consider their actions.
"The current winds in Washington seem to favor those companies that are doing their utmost to keep their workforce in place and secure their wages during these turbulent times, and therefore not publicly," he said.
Generally speaking, larger companies are expected to keep employees as intact as possible when the overall economy is affected, he said.
"Which major law firm would like to bear the brunt of the negative press surrounding their decision" Snidely Whiplash "to currently unemploy their employees 'lower rungs to protect their partners' incomes?" he said. "Not a pretty public image, and one that I think law firms should work at all costs for now to avoid it."
Not all companies are considering cuts
Some partners who were asked about the possibility that companies might consider cutbacks were dismayed and said they were disappointed to hear from peers who are considering this.
The prospect of cuts comes at a time when law firms are drying up work in many areas, including mergers and acquisitions, and litigation, and delays, hearings, and sometimes whole court proceedings are being delayed. The restructuring work is now heating up.
However, not all companies take reductions into account. Sources close to some of the most profitable companies, including Paul Weiss and Wachtell Lipton, said no cuts would be considered there.
Legal recruiters meanwhile have reported that law firms are still bringing in people who were on the move before the corona virus broke out, but that new hires have been suspended as companies take care of their business and assess the damage.
"Recruitment isn't the top priority right now," said Alisa Levin, a New York City-based recruiter, whose company Greene Levin Snyder. Levin said at least some of her candidates were still making progress as the interviews were conducted via video conferencing rather than face-to-face.
"It's early," she said.