Goodwin Procter, after announcing layoffs in January, hired 14 lawyers from a rival the same month—and then added four more from that firm in February.
Law firms are hiring and firing in substantial numbers—sometimes at the same place. Their approach is a blend of the aggressive job cuts in the last recession and the intensive recruiting during the 2021 boom.
The hires now are strategic, as opposed to building to meet demand, and the cuts are “people who are not necessarily producing revenue for the firm, but just cost centers,” said Mary Rosenfeld D’Eramo, vice president of operations at legal recruiting firm Mestel & Co. “The foundational block is profitability.”
The drumbeat of layoffs has been steady. Stroock & Stroock & Lavan said in January it laid off nine lawyers and 18 staff; Davis Wright Tremaine announced Feb. 7 it was cutting 21 professional staff; and Shearman & Sterling said earlier this month it was culling 38 attorneys and professionals.
Firms are also hiring. So far in 2023 the nation’s top 200 law firms have brought on 372 lateral partner hires, just 1.6% off of last year’s pace of 378, according to data from Leopard Solutions.
Davis Polk & Wardwell said it’s opening an office in Brussels for a new European antitrust practice led by two Allen & Overy hires and it added Jones Day’s mergers and acquisitions leader James Dougherty in New York. Cozen O’Connor said Feb. 16 it’s opening a Boulder, Colorado, office with four intellectual property lawyers.
And Shearman last week brought on co-leader of Pillsbury Winthrop Shaw Pittman’s energy and infrastructure projects practice Mona Dajani.
Goodwin Procter raided Troutman Pepper for 18 new hires in health and life sciences in January and February—after it announced it was laying off associates and professional staff. The decision meant a 5% reduction in timekeeper and business operation staff, the firm said.
Some firms are using the macroeconomic environment as cover to upgrade the quality and performance of their talent, said law firm management consultant Kent Zimmermann.
That means “cleaning up” the workforce by counseling out underperformers, Zimmermann said. “They’re doing that with the one hand, while with the other hand more aggressively recruiting in higher performing groups of people,” he said.
Firms are hiring and firing after profits per equity partner fell nearly 4% last year, according to a Wells Fargo Legal Specialty Group report.
The law operations were forced to absorb the costs of a 4.5% increase in headcount as they hired aggressively to cope with a 2021 surge in work.
Firm leaders since then have had time to regroup, said Marcie Borgal Shunk, president and founder of the consulting firm The Tilt Institute.
They’re being thoughtful rather than reactive about shedding talent not aligned with critical goals, Borgal Shunk said. They’re redeploying dollars “into areas of strategic growth, whether that’s technology or professional development or client development needs,” she said. “It also protects profits.”
Unlike the Great Recession, when law firms were forced to make deep cuts, the uncertain economic times of 2023 require a softer touch. The job market remains strong, but a steady string of interest-rate hikes threatens to push the US into a recession.
“We are looking at an economy with indicators that are a little out of whack with what we’ve seen historically,” Borgal Shunk said. “It is harder to get a straightforward read on the direction in which we’re headed.”
Some firms are adjusting to the times by seeking out combinations with other law operations.
Deals announced so far this year include Orrick, Herrington & Sutcliffe’s merger with Washington’s Buckley; Morrison & Foerster’s acquisition of litigation boutique Durie Tangri; and Holland & Knight’s combination with Nashville-founded Waller Lansden Dortch & Davis.
Shearman is reported to be in early-stage merger talks with Hogan Lovells, and Stroock & Stroock & Lavan has been said to be searching for a combination partner.
Firms understand that when they’re competing against others for talent the larger and more profitable firms have an advantage, Zimmermann said.
“Consolidation is picking up because it’s a path to get greater benefits of scale and market leadership,” he said. “The benefits of scale are better understood by more high performing firms today than at any time in modern history.”
Michigan-founded boutique firm Clark Hill this year acquired Philadelphia’s Conrad O’Brien and that firm’s 18 lawyers. Less than a month earlier, it also picked up the four-lawyer real estate law firm Larsson & Scheuritzel.
“The cost of doing business and running a law firm is increasing dramatically,” John Hensien, Clark Hill’s chief executive officer, said in an interview. He cited rising labor and technology costs, as well as mounting cybersecurity compliance requirements, among other factors driving expenses.
He also said succession planning at smaller firms whose founders are looking to retire has prompted some to look for tie-up partners.
The combinations could usher in a long-anticipated consolidation in the legal industry, with Big Law’s behemoths getting even bigger and the rest of the market splintered.
“We’re likely to see the middle getting thinner,” Hensien said. “More of the smaller firms will specialize as high-end boutiques, especially in niche industries.”
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