25 Jun What Do Weil Gotshal Layoffs Mean?

From a human perspective, it is extremely sad to hear that venerable law firm powerhouse Weil Gotshal & Manges has decided on massive lawyer and staff layoffs, along with major reductions in pay for 10% of its partners. On Monday they announced letting go 60 young associates (about 7% of all their associates) and 110 non-legal staff. Why? In their announcement they noted that they stayed strong through the downturn because of their world reknown bankruptcy and restructuring practice, with such huge clients as Lehman to keep them going. The presumption when that stuff went away was that the transactional side of the business would pick up, in particular mergers and acquisitions (M&A).

The problem is that M&A, while improving, is nowhere near its pre-2008 levels, and even though WGM’s market share has improved in M&A, the number of deals is still not great. And thus the first large layoffs in the General Motors Building tenant’s long history. But they also noted something important: if this were a year or so issue, they would not be taking these steps. BigLaw historically has avoided layoffs in the face of short term downturns in business unlike their Wall Street investment banking counterparts. But they believe there is a systemic change in the market for legal services and expect at least a 5-year impact on their bottom line. More big companies are doing work in-house or asking law firms to outsource low level work to cheap places like India or to temporary low-paid lawyers. They are much more cost-conscious, which frankly is difficult for big firms to manage given their culture and history.

Will this affect the daily life of WGM’s 300 partners who make an average of $2.2 million a year? Well it will affect the 30 whose pay is being cut by hundreds of thousands. The rest probably not so much. But to me the message here is actually a good one from a business perspective (if not the human one): with a reduction in demand that appears long-term, adjusting your plan and reducing your overhead makes sense. What does this mean? Many think they are setting the stage to give cover to other major firms to take their heads out of the economic sand and acknowledge the reality of the new normal. All this is better than watching more big firms just disappear, even though the impact on folks kind of stinks.