The above article cites another cost-cutting campaign by a large US law firm. 65 associates and staff are let go to trim costs because of reduced profits, as follows:
“Mr. Newberry said the layoff of 30 lawyers and 35 staffers were an effort to “align head count with revenue”…There were no partners who were let go, Mr. Newberry said. The firm now has 455 lawyers. But in recent months the firm has notified 18 partners that their contracts won’t be renewed unless their performance improves.”
As a general observation, law firms often cut associates and staff during tough times but don’t cut partners. Why not cut unprofitable equity partners as well and optimize your firm’s leverage? Cutting associates and staff boosts short-term profit but often sacrifices long-term profit by reducing leverage. This is a real problem for most law firms, and highlights the deficiencies of the traditional democratic law firm business model.
Most law firms focus on short-term costs like associate and staff head count, but don’t address the really important “costs” such as unproductive partners and equity partner head count. Many large law firms have 20%+ excess capacity in their partner ranks, which is a huge drag on PEP profitability. You need to cut your ownership ranks and optimize leverage in order to compete with new law firm business models and ABS structures coming out of the UK. Easier said than done, however, when the owners have to hold a democratic vote on who’s going to go first..