The new round of layoffs at Cooley LLP is an “inevitable” result of a hiring system in which some major law firms binge on associates during surging demand and quickly cut bait when work slows.
Some firms simply “have too many juniors around,” said Jennifer Henderson, a legal recruiter for Major Lindsey & Africa.
Silicon Valley-based Cooley said Wednesday it’s laying off 150 lawyers and business personnel across US offices. Joseph Conroy, the firm’s chairman, called the move a “painful but necessary” step to reduce associate ranks that swelled as demand boomed last year.
It’s not the first time that the tech-focused firm—whose profits per equity partner topped $4 million last year—has had to make deep cuts to correct overhiring. Cooley slashed more than 10 percent of its attorney headcount in 2001 after the dotcom bubble burst and made layoffs amid the Great Recession less than a decade later.
How many other law firms will follow suit remains to be seen.
Kirkland & Ellis—the behemoth that also hired aggressively last year—and Gunderson Dettmer, which is Cooley-like in its focus on emerging tech companies, have already made “stealth” layoffs that the firms describe as performance-based. Cooley made similar reductions earlier this year, before the latest round of layoffs.
Legal industry experts attribute the workforce reductions to overhiring during the boom time, which left some firms with an inflated bench when demand for business transactions and other lucrative work began to stall earlier this year.
Cuts were “inevitable and almost expected” considering the market downturn, said Katherine Loanzon, New York-based managing director of Kinney Recruiting. The “writing was on the wall,” she said.
‘Money Walking Out the Door’
Cooley, with its stable of major tech clients like Twitter, Inc., Meta Platforms Inc.'s Facebook and Apple, Inc., is best known for its emerging companies work. Business boomed during the pandemic, thanks to the SPAC craze and record-setting IPOs.
By the end of 2020, lawyers were billing record hours while largely working from home and navigating the chaos of the pandemic. They just kept getting busier, until earlier this year when demand hit the skids.
M&A deals fell nearly 29% over the first three quarter while IPOs plummeted 90% over the same time period, according to Bloomberg data.
“I think everybody hired for what the market was, and we weren’t expecting the market to slow down as quickly as it did,” said Stephanie Biderman, a New York-based partner at legal recruiter Major, Lindsey & Africa.
Cooley is no stranger to mass layoffs in the face of changing economic circumstances.
The firm laid off 85 associates and 50 paralegals as the bottom fell out of the dotcom bubble in 2001.
''In response to what was in retrospect a huge spike in demand for our services in 1999 and 2000, we hired and built up capacity,” then-Cooley chairman Stephen Neal told the New York Times in 2001. ''When the downturn hit, it left us with too many’’ lawyers, he said.
Conroy sounded a similar note in his Wednesday email explaining the new cuts. He said the firm hired up to meet “unprecedented demand and to help ease unsustainable workloads” in 2020 and 2021.
Cooley was one of the top hiring firms during the recruiting frenzy, bringing on more 300 associates since July 2020, according to data compiled by Leopard Solutions. The firm also lost nearly 180 associates over that same time, according to Leopard.
Avoiding the layoffs would have meant hiring fewer associates, Henderson said, but also likely losing lawyers already at the firm over burnout.
Firms faced with swirling demand also added associates in order to help retain partners by giving them appropriate support.
“That’s money walking out the door,” California-based Henderson said of potential partner departures.
No Trophy for Transparency
Hiring decisions can haunt a law firm for decades.
Fourteen years later, Henderson said she still gets questions from potential candidates about their vulnerability at firms that laid off lawyers in droves during the Great Recession.
“These are associates that were in high school during that time,” Henderson said. “That’s a really long message that’s had staying power in the market.”
Some associates at rival firms got good news this week in the form of annual bonus announcements. Combined with the recent layoff news, it paints a mixed picture for junior attorneys at large firms.
“There are many firms that are kind of in a wait and see pattern and are hopeful that some of the overcapacity they might have now might just be a short-term dip,” Biderman said.
Industry observers credited Conroy for addressing the layoffs head on, even if they saw it coming from a mile away.
“It took a lot of guts for Conroy to be transparent and candid about the reason,” Loanzon said. “I don’t think it’s going to give a lot of solace to the attorneys.”
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