The struggles of BigLaw have received a great deal of attention recently. It is quickly becoming conventional wisdom that BigLaw is experiencing a "new normal" and that law firms must overhaul their operations. When Weil Gotshal announced layoffs of 60 associates and 110 staff members in June, it described the layoffs as "essential to enable our firm to continue to excel and retain its historic profitability in the new normal.” Most observers accepted Weil's explanation, with some predicting that other firms would have to follow suit. A rare critical take on the layoffs can be found here.
I do not deny that BigLaw firms are experiencing a "new normal," although, as I have argued previously in this space, the economic rationale for thinning associate ranks at this point in time is questionable. What is dispiriting, however, is the widespread acceptance of the view that the logical response to the "new normal" is for firms to contract. To be sure, this might be the right response for some firms. But cuts and layoffs are only one way to respond to sluggish demand, and, like any business decision, carry risk.
Aside from the obvious human toll, layoffs leave firms less able to weather an uptick in demand, hurt morale, and can impede recruiting and business development. Perhaps more important, while layoffs may boost short-term profits, they may not be the best path towards long-term growth. Firms invest heavily in their new associates and are essentially foregoing much of the return on that investment when they conduct significant layoffs.
Weil has now provided us with a real-world example of the perils of focusing on short-term profits. As first reported by Above the Law, Weil has lost eight of its partners in Dallas to Sidley Austin (disclosure: I was formerly associated with Sidley Austin). Seven of the departing Dallas partners are women and were apparently upset that the aforementioned Weil layoffs predominately affected i) women and ii) Weil offices outside of NY. While this is clearly an atypical situation, BigLaw has become less diverse in the recession's aftermath and layoffs are rarely evenly distributed among offices. The Wall Street Journal appears to have corroborated much of ATL's original reporting.
While the ultimate impact of these departures and the resulting negative publicity might not be known for some time, Weil's layoffs - conducted with the assistance of a top consulting firm - look far worse now than they did at the time. Unsurprisingly, Sidley is differentiating itself from Weil by touting its Dallas hires to the media as evidence of its commitment to expansion.
There are many possible ways to navigate the "new normal," and it is not self-evident that refusing to make drastic cuts is the riskiest decision of all.