The Big Green "O" Stands for "OMG"
So now the WSJ Law Blog and Above The Law are reporting that Orrick is going to be laying off 40 attorneys (and 35 staff).
In the comments on another post, I've been debating with McWho on whether the collapse of Heller and Thelen are primarily the result of the economy or poor management. That's not much consolation to Heller employees, I know. But it's important for law students, since most firms are going to cut back, but not expire.
My point in this post, however, is to focus on California. In light of Heller and Thelen, Orrick is the third SF-based firm to face difficulties. And Orrick has one of the strongest practices in Northern California; after all, they were the ones that raised market salaries to NY levels in 2006.
It seems to me that the California legal market swings more widely than other areas in the US, probably since it is largely fueled by venture capitalism. This is bad news for Boalt, since our law students--more than any other national law firm, including Stanford--tend to self-select to California markets.
EDIT: All those specifically interested in Orrick should see this interview with the firm's managing partner.
In the comments on another post, I've been debating with McWho on whether the collapse of Heller and Thelen are primarily the result of the economy or poor management. That's not much consolation to Heller employees, I know. But it's important for law students, since most firms are going to cut back, but not expire.
My point in this post, however, is to focus on California. In light of Heller and Thelen, Orrick is the third SF-based firm to face difficulties. And Orrick has one of the strongest practices in Northern California; after all, they were the ones that raised market salaries to NY levels in 2006.
It seems to me that the California legal market swings more widely than other areas in the US, probably since it is largely fueled by venture capitalism. This is bad news for Boalt, since our law students--more than any other national law firm, including Stanford--tend to self-select to California markets.
EDIT: All those specifically interested in Orrick should see this interview with the firm's managing partner.
Labels: OCIP/Employment
posted by Carbolic at 11:00 AM
21 Comments:
A while back Orrick made the strategic choice to "go NYC" -- i.e., chase the big corporate work that traditionally went to New York firms.
That work pays well - REALLY well - in good times. And right now, as we all know, it's something of a sinkhole. I think it's probably fair to say that among "CA firms," Orrick is second only to Latham (and maybe Gibson) in terms of their exposure to corporate work. It's unlikely this is over yet.
Who would have thought DC firms would suddenly emerge as the Big Law safe haven! Long live government and regulatory work. Less payout, but less risk too.
equally scary is that kaye scholar is laying off litigators. I thought litigation was supposed to be safe in bad times, but apparently many associates just couldn't make their hours.
Another take on the plight of SF firms from an ATL comment:
SF firms are the worst and I worry that all of the top SF firms will eventually fold or merge. They can't compete with NYC firms like LA firms (Latham, Quinn, Gibson, OMM) can. Part of their reason is that they don't have cut-throat cultures. They are so goody-goody lets help the world. Let's do pro bono. Let's donate money. Sure, big NYC firms do that too but they have much higher profits per partner and more respected corporate practices that can still get sufficient business.
To give but one example, I know a top SF firm that recently spend hundreds of thousands sponsoring election day poll monitoring. I mean, that's a noble cause but this firm isn't known to be doing well. They paid for their associates to go to Nevada. They gave them $75 a day to spend on food. They let them do two days of non-billables. Again, nice cause but in this economy shouldn't you be worrying about surviving and growing instead of blowing money on crap. This is a classic example of why SF firms are doing so poorly.
Bad times for all SF firms...that 160k move is really starting to hit home I think. So is that New Yorkification.
It's not exposure to "corporate work" per se, but exposure to certain types of corporate work. Go to the Orrick website and search for attorneys in their structured finance group - an area that is completely dead - and you'll see why this happened. Latham also has a large structured finance group, but it seems a lot smaller than Orrick's relatively speaking.
I don't think any firm is immune, but Orrick seems to have been particularly vulnerable.
11:49,
I have two responses to your comment that DC firms are a safe haven:
1. You must not have tried to get a job there. That market was tighter than a ... well, let's just say it was tight.
2. This.
Hey matt --
1. Actually, that may make sense. Perhaps there were more people trying to score jobs in DC this year if they thought it would be a more secure job, thus more demand makes a tighter market. same way that applications to B-schools are WAY up this year, with banker types trying to ride out the recession/depression. (alternative hypothesis: DC firms hiring less, thus less supply -- which segues nicely into:)
2. I saw that too, about 5 minutes after I wrote. hah. Guess no one is safe!
O cut a few positions in a slumping practice area. I don't think this is the same as H & T dissolving; this is a good business move.
Not to be selfish but, aw hell why not be selfish? Do you guys think litigation work is insulated from this? Every instance of layoffs I've hears so far involved some pretty corporate/transactional stuff (which is understandably slow right now). I haven't heard of too many lit departments getting hit (except, y'know, when the entire firm folds).
Some of you might have heard me ask this same question on NPR, but they never answered it.
Lit can be hit but it totally depends on the clients of the firm. When a company gets acquired (Countrywide is a great example) then all of a sudden new in-house attorneys are shopping work out to firms. Sometimes the firm stays on, sometimes they switch.
Another factor is price. Companies are getting stingier and this can cause them to switch firms.
All that said, it is MUCH safer at the moment to be a litigator.
There is nothing wrong with the SF market. The reason there are SF firms biting the bullet right now is because those firms have been on the brink for some time, and are the canary in the coal mine of a coming re-ordering of BigLaw.
For a number of reasons, corporate legal services lag far behind other professional service firms in adapting to modern organizational management, global service delivery, diversity and diversification. The legal industry still relies on "prestige" as a metric of quality while the rest of business has been applying strategic management principles to increasing productivity. The firms that have caught on to that are succeeding, and the firms that are still holding on to their former glory are going to be bought, merged, or will collapse.
There are firms aggressively hiring in SF (albeit cherrypicking the cream of the crop): DLA Piper, Jones Day, Baker & McKenzie, Bingham McCutchen, Reed Smith, others. Common characteristics include non-premium billing rates, top of the line management systems, globalized or at least decentralized cultures and reach, and less reliance on serving Wall Street banks and more on serving corporate clients in diversified areas. They are also more likely than not to be more diverse than most, better at work-life balance, and are justifiably regarded as cheap on bonuses and perks (it goes with the non-premium rates).
Those firms and others like them are growing fast, and stealing work away from the "prestige" firms. In a few years it will be clearer still that the corporate legal industry will soon look more like the accounting industry... a smaller number of mega firms with global reach and professional management. Choose your firms wisely, Boalties!
7:39, I'm not sure exactly how to respond. You put forward a pretty thought-out explanation for current events. I don't really buy it, but I respect its thoroughness.
1. "There is nothing wrong with the SF market." SF is not a large legal market, as compared to NY, DC, or Chicago. Much of the work here--private equity, venture capitalism, technology IPOs, fund formation--is capital dependent, which is why the SF legal market went into such a slump in the early 2000s.
2. Innovative firms can certainly overtake those that are slow to adapt. But "prestige firms" (your words) aren't going anywhere. In fact, highly regarded firms often do very well in down times, getting a larger slice of the diminishing pie. (See the last paragraph of this article.)
3. I don't think that the 3,000+ attorney "mega-firm" is inevitable. Unlike accountancy, there's no particular reason for a business to have one firm provide all of its legal services. A business's particular need can be best served by choosing among different firms, each at different levels of experience and cost. Besides, the mega-firms aren't even particularly profitable on a per capita basis.
4. Quite frankly, you sound like an associate at one of these non-fancy mega firms (maybe Reed Smith or DLA Piper) with a chip on your shoulder. Which is fine, I guess. But I don't buy your argument.
Er, I meant this article: http://www.law.com/jsp/tal/PubArticleTAL.jsp?id=1202425636923
7:39, the conflict rules won't allow the type of consolidation we've seen in accounting. Plain and simple.
7:39 here. Yes, I am an associate at one of those firms, but I certainly do not have a chip on my shoulder. Call up any friends you know at those firms, and ask them if they are busy... they will likely tell you they are.
Of course there are benefits to having one firm provide most or all of your legal services. To start with, you can negotiate better rates, gain from economies of scale, and create a global integrated legal strategy. There is room for niche firms, but there is absolutely no benefit to employing eight different full-service firms just for the heck of it. The difference in consolidation between the accountancy and legal industries is not so much some difference in the practice of the two (although conflict rules do play a part), but rather the prohibition on sharing fees with non-lawyers. Law firms can't have investors, and thus their access to capital is limited to their partners and loans. Believe me, if law firms could do a public offering, consolidation would be far advanced by now.
The prestige firms aren't all collapsing tomorrow, but they will be merging, and they will be adapting to the new realities. New York firms may have been able to charge Merrill Lynch premium rates on handshake deals, but with Bank of America things are much different; they want discounts, they want e-billing, they want diversity, they want global reach.
Yes, the mega-firms are significantly less profitable per partner and attorney. Which is exactly why corporations love them... they don't charge exorbitant rates, or for lavish holiday parties and limos. Rather, they invest in training, knowledge management systems, global expansion. They are growing very fast, and encroaching more and and more on the old line firms.
Again, it's not that we are going to wake up tomorrow and all the NY firms will be gone and there will be three mega firms standing. But this is the direction that things are going, and it will be more and more apparent as we get there. And if you want stability, the choice is clear: all of those firms are busy, and none are laying people off. Pretty impressive given their size, wouldn't you think?
If you are interested in another set of views along these lines, check out http://www.adamsmithesq.com/blog/.
You're likely both right - as many firm managing partners are predicting the same thing.
There is definitely a trending in the legal services industry where a top tier is separating itself from the rest of the Am Law 200. How many predicted to be in this top tier depends on which firm you ask (some say around 15, some say around 30). This top tier will continue accelerating salaries and bonuses, continue to specialize in complex very high-end work, and will not see rapid expansion and consolidation.
Then there's everyone else in the Am Law 200. These firms will end up being like 7:39 says - mega firms that do the plug and chug work, offer clients global reach with thousands of bodies. These firms will not try to keep up with the "NY to 190" rumors or "bonus watch" on ATL. But you'll likely have humane working hours and people won't be caught up on prestige.
Then there's the boutiques - which nobody ever really expects to change. But many may get gobbled up in super-mergers to serve as future marketing pitches for a globo-firm.
Evidence of this trend is widely reported from I believe Citibank (I could be wrong on which bank, but I think it's that one). Almost all of these AmLaw 200 firms use the same bank, and in return that bank compiles anonymous statistics on the industry and reports back to all of them.
I usually take stories such as this with a grain of salt. I still do, but I've heard it a number of places and at a number of firms - particularly the ones ranked in that 20-35 range that feel a sense of urgency move up. Take it for what it's worth I suppose...
Litigation may be safer than corporate, but keep in mind that companies' stock prices have taken a beating this year. Which translates into more push back on staffing, discovery, fees, etc.
No one is really safe in this economy.
And I say this as a lit assoc at an SF firm.
keep in mind that companies' stock prices have taken a beating this year
Woo hoo...more section 10b suits!!!!
from everything I've heard, the "litigation is doing well during the slow economy" paradigm is not working so well for litigators right now
I have confirmed reports of Orrick laying people off beyond those reported. In fact, they have laid off at least one incoming "stub" year in their Silicon Valley office. This hasn't been getting reported though, but it makes it a lot scarrier for law students, I'm sure....
gosh, that's really scary. scary times.
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