CAREER COUNSELOR'S CORNER 1. 800. 973. 1177
Are You About to Be Laid Off?
Layoffs are often sudden, sometimes unexpected, and always unpleasant -- noticing the signs that you may be
on the chopping block at your firm can help ensure that you are prepared for the worst.
You need to keep the unpleasant possibility Association. Next came the scrutiny of law challenge to such prevailing Protestant-domi-
of lay-offs in the back of your mind, for it has firms by M.B.A. consultants in the early 1980s, nated orthodoxy. Attorneys advertising in the
become a very relevant possibility whether followed by the multiple crashes of dot.com Yellow Pages destroyed whatever façade the
you are a partner or an associate. In fact, the firms in the late 1990s and early 21st Century. law had built over the previous centuries as
larger your firm and the more practice areas a discrete, almost priestly profession that
it offers, the greater the lay-off danger, espe- Thus, in the final three decades of the 20th distained mass solicitations. In turn came a
cially if each practice specialty is considered Century, the law profession saw itself trans- change in the public’s perception. Lawyers’
its own profit center. We’ll tell you how to spot formed from an inbred, sleepy, self-regulating emergence in the Yellow Pages helped create
the signs of pending lay-offs in a moment, but subculture into an intensely competitive ser- the impression of law as a service industry
first, a little legal cultural history is in order, vice business vying both for the highest paying like any other.
as it will place the specter of law firm lay-offs clients and for the best cognitive resources
in context for you. (Law Review and Federal Clerkship graduates Cultural Change Number Two: The Withering
of the top law schools). These competitive Scrutiny of M.B.A.’s
Law as a Gentleman’s Club pressures have driven up associate salaries
and opened up competition for clients, even at The use of consultants by law firms can be
Still in the memories of lawyers now in their discrete white-shoe firms. partly linked to the effect that the Yellow
sixties lives a magical era when big law Pages had democratizing the law and chang-
firms did not lay off attorneys. Instead, their Cultural Change Number One: ‘Decultured’ ing its public perception. Once you accept
bonuses might be discretely cut, their clients by the Yellow Pages that running a law firm is not analogous to
shared or gently expropriated (while accom- managing a men’s club and is not demonstra-
panied by some seemingly plausible explana- Yellow Pages advertising, other than listings, bly different than running any other business,
tion), and their salaries secretly frozen. These was (and still is) generally avoided by major hiring business consultants becomes the
middle-aged and older lawyers would be American national and international law firms. logical next step.
silently acknowledged as dead wood ‘carried’ However, such advertising has become a boon
by other more productive partners and as- for small law firms who use the Yellow Pages, Business professors and consultants quickly
sociates until eventually made ‘of counsel’ or television and radio to attract small clients in introduced into imbedded law firm cultures a
given a dinner and gracefully retired. Unless volume, which had previously been next to im- revolutionary new form of disciplined econom-
there was moral turpitude involved, a lawyer, possible due to the legal subculture’s unwrit- ic and structural analysis. They compared law
with few exceptions, was almost guaranteed ten prohibitions. Big law firms seldom if ever firms’ existing organizational structures and
lifetime employment. solicited business off the street but preferred financial management practices with modern
and still prefer stable relationships with business structures and practices. Most law
Sleepy Giants Transformed large, deep-pocketed clients who are wooed firms were found to be inefficient and operat-
not in a mass retail environment but through ing economically in counter-intuitive ways.
Changes to this gentlemanly environment discrete professional associations, referrals
came in the 1970s and have intensified since. and private clubs. Part of this abhorrence of In the July/August 1984 issue of the American
The first shock to what once approximated a advertising can be traced to the influence of Lawyer, David Maister, then of the Harvard
19th-century-men’s club-atmosphere began the Protestant Ethic, especially in big, old-line Business School, produced a landmark article
with the start of Yellow Pages legal services firms. In this Ethic, calling attention to one’s on law firms. He created terms such as:
advertising in the 1970s, a move fought vigor- self in any way was frowned on. The use of
ously but unsuccessfully by the American Bar the Yellow Pages by lawyers acted as an open NIPP (Average partner income) L (Ratio of
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CAREER COUNSELOR'S CORNER 1. 800. 973. 1177
associates to partners) affirm the enduring force of cultural change. because that is all you have. Scrutinized
BR (Blended hourly rate) U (Client hours One 19th-century example is Napoleon and carefully, such external observations may be
recorded) the brief return of the French monarchy that sufficient.
R (Revenues divided by time recorded) M momentarily interrupted what turned out to be
(Partners’ profits divided by revenues) lasting democratic tradition in France. The first alert is the loss of a client or a
Another example of a retrograde moment was reduction in business by a major client. When
Maister uncovered much that is today accept- the late-20th-century Dot.com explosion of this happens, a firm’s managing committee
ed as a truism. For instance, he observed that business start-ups in the Palo Alto and Silicon almost automatically starts thinking about
a practice area produces more ‘net’ revenue Valley areas during the technology boom of which partners and which associates might
if a partner spends an hour generating three that era. Suddenly, law firms threw economic be expendable. If the dip in profits is seen as
hours of associate work than if (s)he works caution to the wind. Lessons taught them by temporary because, say, a new client is on the
one hour billed out at $400. Maister produced business consultants were forgotten. Firms horizon, or, a re-organization is about to take
charts identifying the most economically ef- could not hire enough associates fast enough place following an anticipated partner retire-
ficient ratio of partners to associates based on to get the work done. At many firms, clients ment, then probably this drop in net profit can
a varying set of general assumptions. He iden- had to be turned away. Even second- and be tolerated for the short term and no action
tified high-margin clients and high-margin third-tier law school graduates found big and will be taken.
practice areas. He detailed profit per partner, prestigious firms begging for them. Then, with
support-staff and associate turnover rates. He dazzling quickness, it all came to an end. This The problem is ascertaining a management
charted partner equity growth rates, the share is when law-firm lay-offs recommenced in committee’s tolerance for loss. How long
of fees from high-margin clients. He exam- earnest. is ‘short term’ for this committee? Three
ined ratios of support staff to associates and months? Six months? Also, how deep is the
partners, all of this in a search for a maximum So What Are The Signs A Lay-off Is Coming? drop in net profit? If profitability does not just
leverage and mix of resources to produce the decline, but plunges into the red, concern for
highest possible year-end profit. As a result, You now have some insight into how business the firm’s long-term viability heightens. Lay-
lawyers, support staff and partners became consultants dissect the economic function- offs are triggered when a management com-
conceptualized as work units and modules in ing of a law firm. Basically, the business mittee concludes that it can no longer tolerate
an economic engine designed and constructed consultant drill is to always look for extrane- a seemingly diminished and possibly terminal
to generate sufficient profit to perpetuate ous operations that somehow have grafted financial future.
itself. These work units were not in stasis but themselves on to the operation but are of
always in movement either towards greater questionable economically productive value. Your first task is to figure out whether you are
or lesser firm profit. Such figures did not lie. The business consultant seeks maximum use among a core of elite partners and associates
They isolated and detailed each individual’s and efficiency of all available resources. This who are to be saved from lay-off, or whether
contribution and made it relative both to a mindset is on-going, because opportunities you are potential prey. If you are not lucky
norm and to a proposed target level. It also to cut, trim and thereby improve are almost or resourceful enough to have a spy within
placed every economic unit within the firm in always available. the management committee, you will have to
competition with every other. This scientific deduct what’s about to happen from what you
and Darwinian business approach has made With this background in mind, you might try observe. We enter a subjective area here. One
the lay-off merely one more business tool to pretend you are an outside observer who can watch body language and listen carefully
useful in protecting a law firm’s profit mar- suddenly has the kind of insight into your firm for hints from certain key keepers of secrets;
gins. The ancient idea of Christian charity and that you have gained by working there. The but even the managing partner may not know
Protestant noblesse oblige that once served to problem is, how are you to know which clients in advance when his or her tolerance for the
protect even unproductive members of a law produce the highest profits and which gener- situation will collapse.
firm had vanished. ate the lowest? Low-margin clients usually
get such a designation because they require a Also, how one deals with a financial crisis
Cultural Change Number Three: The Dot.Com lot of face time, like to haggle, can’t make up can differ from firm to firm. The management
Crash their mind, etc. Or, the partner causes all of committee can decide to forestall lay-offs by
this. Chances are, you will never gain the kind cutting year-end bonuses and partner distri-
There are retrograde moments or contra- of insight to ascertain such facts. Therefore, butions, temporarily eliminating its summer-
historical blips that in their contrariness you have to make external observations intern program, freezing salaries, or reducing
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CAREER COUNSELOR'S CORNER 1. 800. 973. 1177
or eliminating certain perks, such as paying financial situation others more senior in the Have practice areas been merged or elimi-
a smaller percentage of health insurance cov- know choose to share. Eventually, (s)he gets nated?
erage, etc. Much of this is done in the ancient involved in helping to determine who gets laid
spirit of offering sacrifices to the Profit God. off. Have already-hired associates been told not
The hope is that by reducing expenses in the The Business Manager’s Secrets to report in August but instead in January?
short term, something miraculous in the long Are there rumors of partner bonuses being
term will reward such faith -a new client or The business manager of a big law firm, or reduced or eliminated?
an old client suddenly generating more work. the lawyer responsible for this function in a
When and if this doesn’t happen, the next smaller firm, possesses different secrets. Have salaries suddenly been frozen?
step, unfortunately, is human sacrifice(s). These concern the profitability of specific
practice areas as well as an overview of Three or more of these signs should place
Sudden large-scale efforts at expense con- the firm’s overall financial performance. In you on notice. Four or more should, at least in
tainment may not necessarily mean lay-offs smaller firms, there may not be sophisticated your mind, send up a lay-off alert.
are the next step. The firm may be instituting on-going financial analysis in place, creating
these measures merely to increase already- the likelihood that the partners literally wake There’s more…
healthy net profits. On the other hand, let’s up one morning to find that they are hemor-
assume that your firm is healthy yet hires rhaging money. When such a panic ensues, Ongoing rancorous disputes with clients over
a business consultant anyways. Rest as- lay-offs can come quickly and without warn- bills can predispose this client to bolt to take
sured that this consultant, to justify his or ing. Still, if a lawyer watches what goes on, its business elsewhere. Visits by I.R.S. audi-
her fee, will recommend many or all of the there can be clues that potential problems tors are generally not a good sign. Finally,
above cost-cutting tactics as well as others exist. how quickly such problems are addressed
not mentioned, whether or not the firm is and dealt with can be a predictor of how expe-
financially strapped. You can also anticipate Has your work load tailed off and stayed that ditiously a firm is likely to deal with threats to
that this consultant may recommend leaner way? a healthy bottom line. If the firm’s manage-
staffing. This can relate just to partners, just ment has a tendency to look the other way or
to associates, or just to support staff. Or, the Are partners suddenly leaving your firm with- procrastinate, then you can assume that this
recommendation can include some or all of out plausible explanation? tendency probably extends to other matters,
these categories. So, the hiring of a consul- such as careful daily monitoring of the firm’s
tant serves as another red flag. Are satellite offices being closed? financial health.
The Importance of Secrets Are partners having a lot of closed-door How much time do you have?
Key piece of advice: Identify the keepers of Hard to say. There are two timetables to con-
secrets in your firm and keep an eye on them. Have outside consultants suddenly taken up sider -yours and the firm’s. As we mentioned
These secrets have to do with deleterious residence in the conference room? earlier, how long a firm takes before sacrific-
changes in revenues and in the firm’s ranked ing to the profit god what it sees as its weak-
assessments of both partners and associates. Are these same partners suddenly walking est and therefore most expendable employ-
These secret keepers may reveal information around looking upset/worried? ees differs with each firm. Generally, there
without thinking. will be an attempt to approach the problem
Has the summer associates program been logically. Here are possible time tables:
The Employment Partner’s Secrets In law canceled?
firms, the partner with employment respon- The Firm’s Time Table
sibility has personal knowledge of indi- Has the annual Christmas party or some
vidual medical conditions, substance-abuse other traditional firm fete been scaled down Problem Detection and Deciding What To do
problems, marital discord, divorce, and other or eliminated? Once it is determined that a firm has a finan-
personal matters which cannot be shared. cial problem, the management committee
(S)he will be privy to hiring needs and their Has employee medical coverage been re- must decide how to fix the problem. Two to
lack, potential retirements, plans for re-orga- duced or eliminated? three meetings required.
nization plus whichever aspects of the firm’s
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CAREER COUNSELOR'S CORNER 1. 800. 973. 1177
Two to six weeks Unless you have a source within the inner
Implementation of Preliminary Measures sanctum of a firm, you will likely not be
If the hemorrhaging can be contained by aware of a problem until economic measures
cutting back on non-personnel expenses, are suddenly put in place. A general rule is
you have nothing to worry about. (WARNING: to go into pro-active attack mode the minute
Don’t be misled if there are a series of cuts you perceive trouble. Start looking for a job
and then a lull. The plan may be designed to so that you can be prepared when the mo-
take place in steps, with a pause after each ment finally arrives.
step to determine if it is necessary to pro-
ceed to the next step, each new step being Conclusion
more severe than the previous one. By the
time you and your cohorts figure this out, it Few lawyers during their working lives are
may be too late. likely to escape either the threat of a lay-off
or its actuality. In the end, of course, all
Two months careers end and all of us, in effect, eventu-
Preliminary Measures Don’t Work ally get laid off. The job of every lawyer is to
Panic sets in slowly and then crests. guard his livelihood and future for as long as
possible. Avoiding lay-offs is one part of this
Beginning of Third Month job - keep an eye out.
Emergency Meetings. Lay-offs Approved.
‘Need-to-know’ Partners notified of plans.
Fifth Month or soon After.
Your Time Table
Whatever you do, do not take the above chart
literally. It is provided to give you a general
idea of how the process works and identify
the steps that must be taken before lay-offs
commence. Remember there are all sorts of
factors which must be considered. Certain
procedures must be followed to assure that
the lay-off process is conducted equitably.
There are age discrimination, sex dis-
crimination and racial discrimination laws to
consider and negotiate. There is the matter
of how laid-off employees are to be treated in
terms of severance and other matters. As a
result, big firms in particular proceed slowly
and with caution even after their minds are
made up. But note: Small firms, especially if
there is only one senior partner, can operate
more quickly than large firms which must
deal with a multiplicity of departments and
fiefdoms, each of which must be brought on
board and coordinated.