Latham, law firm layoffs, and the recovering economy Forum

[Bronte]

Uh, lets revisit freshman economics for a second.

Partners make money based on the net revenue a firm generates. Associates are an expense that directly comes out of that revenue. So by firing associates that aren't billing out more than they cost, a firm is putting money directly in the pocket of the partners. It attracts partners when firms layoff deadweight associates, because it means they will be getting richer. If you need proof, look no further than Cadwalader.

Lol, I'm done with this fight. Now it's a positive thing to layoff associates?

For partners, yes. For associates, obviously not. For clients, who knows. Maybe there's some truth to the idea that Latham et al will have trouble recruiting; in which case it's bad for clients in the long run. But at the same time, clients hire lawyers, not firms. If their go-to partner fires his associates, he's still their go-to guy.

It's better for partners if associates are laid off than if the firm tanks, sure. But firms, especially New York firms, run really high leverage ratios for a reason. Do you think Cravath, with an over 4:1 associate-partner ratio, has all those associates out of the goodness of their hearts? You think they just wish they could fire them, cuz it would be better for the partners? No, they do it because it is profitable. And they if they start firing associates, that tells partners that they don't have the work to keep those associates busy. And that's a bad thing.

[keg411]

Yes, it tells the clients that the firm is in trouble when the layoffs occur. But if the clients see the firm starts hiring again, they think they are profitable again and less worried. Hence the initial drop after the layoffs and then subsequent rise of Latham in the Vault rankings. In 2011, it doesn't hurt the clients that Latham axed a ton of first-years back in 2008-2009.

However, I think the OP is important in that it points out that the same management is still in place and they know they can do stuff like this again with only a temporary drop in client-perception. But the advantage for Latham is that there are way more qualified law students then jobs, so it's doubtful they'll be hurting for talent.

[rayiner]

The reason the firms try their best to hide their layoffs is because of the reputation damage. It's a basic tenant of business

Hate to break it to you, son, but it's still a law firm's market and it will continue to be so for the foreseeable future. Because of that, I strongly doubt law firms like Latham have suffered a decrease in the quality of students they recruit, at least if the last two summer classes were any indication. Moreover, when the law students' market returns, they will all have forgotten. Just like the classes of 2009 and 2010 forgot about Latham's actions in the early 90s.

But again: A reputation damage from WHOSE perspective? Does Chambers and Partners evaluate firms based on how many they laid off? Legal500? No. The layoffs matter only to associates. The "reputation" associated with not having laid off people matters only to future associates. But I guarantee you that Latham is just as good at what they do now as when they laid off those associates.

I hope you're beginning to see the rift here (it's kind of obvious and I'm surprised you haven't gotten it so far): The interests of partners and the interests of associates differ significantly; what's good for the former isn't always what's good for the latter. Latham could have easily survived if they didn't lay off their associates; they'd just have taken a hit to their PPP. Because partners still wanted to take a lot of money home, they fired associates. That's just the way of life. How do other partners view the move? I'm sure they are all fine with it and thank god they weren't put in a similar position, because they'd have done just the same thing. If Wachtell's business dried up overnight like Latham's did, you're fooling yourself if you think the partners would think twice before firing associates left and right.

How do clients view Latham's layoffs? They probably don't care.

So really, to the people who do matter in the legal industry, partners and clients, Latham is A-OK.

Latham suffered a serious recruiting hit. At NU they had to start calling back rejected students because their yield sucked. Did they still get people? Sure. Did they get top grads like they used to? Everyone who had the grades go to a different V20 did. I don't think getting top grads even matters but law firms like to pretend it does and they're losing by that measure.

[BioEBear2010]

Uh, lets revisit freshman economics for a second.

Partners make money based on the net revenue a firm generates. Associates are an expense that directly comes out of that revenue. So by firing associates that aren't billing out more than they cost, a firm is putting money directly in the pocket of the partners. It attracts partners when firms layoff deadweight associates, because it means they will be getting richer. If you need proof, look no further than Cadwalader.

Lol, I'm done with this fight. Now it's a positive thing to layoff associates?

For partners, yes. For associates, obviously not. For clients, who knows. Maybe there's some truth to the idea that Latham et al will have trouble recruiting; in which case it's bad for clients in the long run. But at the same time, clients hire lawyers, not firms. If their go-to partner fires his associates, he's still their go-to guy.

It's only "good" for partners to lay off these high cost, low revenue associates if they purely dead weight, i.e., if they have no prospect of improving. I imagine most first-, second-, and third-year associates haven't acquired sufficient skills to become really valuable to a firm. Partners don't hire new attorneys because they are going to make them a ton of dough right off the bat; rather, they view young associates as development projects in the hope they will some day make partner (or at the very least become competent mid-level and senior associates).

[thesealocust]

It's only "good" for partners to lay off these high cost, low revenue associates if they purely dead weight, i.e., if they have no prospect of improving. I imagine most first-, second-, and third-year associates haven't acquired sufficient skills to become really valuable to a firm. Partners don't hire new attorneys because they are going to make them a ton of dough right off the bat; rather, they view young associates as development projects in the hope they will some day make partner (or at the very least become competent mid-level and senior associates).

Depends on the firm. At highly leveraged firms, even young associates have to be very profitable (they don't last long...). At standard billing and working rates, each young associate is looking at $300,000 to $800,000 in total revenue. Slice out their $160,000 salary, money going to support staff, rent, perks, etc. and there should still be some pie left over to juice the firm's PPP.

[rayiner]

Uh, lets revisit freshman economics for a second.

Partners make money based on the net revenue a firm generates. Associates are an expense that directly comes out of that revenue. So by firing associates that aren't billing out more than they cost, a firm is putting money directly in the pocket of the partners. It attracts partners when firms layoff deadweight associates, because it means they will be getting richer. If you need proof, look no further than Cadwalader.

Lol, I'm done with this fight. Now it's a positive thing to layoff associates?

For partners, yes. For associates, obviously not. For clients, who knows. Maybe there's some truth to the idea that Latham et al will have trouble recruiting; in which case it's bad for clients in the long run. But at the same time, clients hire lawyers, not firms. If their go-to partner fires his associates, he's still their go-to guy.

It's only "good" for partners to lay off these high cost, low revenue associates if they purely dead weight, i.e., if they have no prospect of improving. I imagine most first-, second-, and third-year associates haven't acquired sufficient skills to become really valuable to a firm. Partners don't hire new attorneys because they are going to make them a ton of dough right off the bat; rather, they view young associates as development projects in the hope they will some day make partner (or at the very least become competent mid-level and senior associates).

This is quite a distorted view of the model. Second and third years manage sub-parts of a deal and do a lot of real work. Maybe not in litigation, but definitely in corporate.

[BioEBear2010]

It's only "good" for partners to lay off these high cost, low revenue associates if they purely dead weight, i.e., if they have no prospect of improving. I imagine most first-, second-, and third-year associates haven't acquired sufficient skills to become really valuable to a firm. Partners don't hire new attorneys because they are going to make them a ton of dough right off the bat; rather, they view young associates as development projects in the hope they will some day make partner (or at the very least become competent mid-level and senior associates).

This is quite a distorted view of the model. Second and third years manage sub-parts of a deal and do a lot of real work. Maybe not in litigation, but definitely in corporate.

Mmm makes sense. I'm only familiar with litigation, where young attorneys primarily research narrow legal issues and read depositions and the like. Then again, even third- and fourth-year litigators often get to take depositions and write motions . . . I redact my statements/opinions.

[Anonymous User]

Latham was actually one of the more respected firms during the recession because they openly laid off their associates and gave them a good severance package. Most other firms did "stealth" layoffs where they'd say they were firing you for performance reasons and you'd receive no severance package, leaving you 100x more fucked.

[ziggysmarley]

I can imagine Latham having a problem with clients a few years from now--i.e., when 2008-2010 grads move in-house. When there are a bunch of comparable firms out there to handle your business, why choose the infamous one?

[KamaalTheAbstract]

I would guess that since the people filling out the Vault surveys probably have jobs/weren't affected by the layoffs, Latham doesn't feel the drop in ranking. When people from our class start becoming associates and vault asks us how we feel about Latham, their ranking will probably drop a little. I mean how many of you would respond that Latham is a prestigious firm?

[Julio_El_Chavo]

ITT, Latham SAs and associates rationalize working for a bunch of backstabbing, heartless assholes.

[ziggysmarley]

Latham was actually one of the more respected firms during the recession because they openly laid off their associates and gave them a good severance package. Most other firms did "stealth" layoffs where they'd say they were firing you for performance reasons and you'd receive no severance package, leaving you 100x more fucked.

I don't know where you get "one of the more respected firms" from... Even though Latham openly laid off associates and gave them "above-market" severance packages, Latham was lambasted by many for the fact that firm leadership told first years that their jobs were safe and then canned them weeks later without warning. While it's true that other firms ultimately laid off more attorneys and staffers in total than Latham, Latham came off as among the worst of the worst. The fact that "Lathamed" is still used widely as a verb speaks to this fact (as you probably realize, you never hear anyone say "Yeah, they White & Cased a bunch of attorneys last week").

[seriouslyinformative]

Using seriouslyinformative's own logic:

1) any biglaw firm would lay off associates if it had a drop in business
2) Latham laid off associates
3) therefore it had a drop in business
4) other firms (GDC, Davis Polk, Simpson) did not have layoffs
5) therefore they did not have a drop in business
6) having a drop in business means your workflow is not stable
7) if your workflow is not stable, your firm is not stable
/8) Latham is not a stable firm

I don't think you can reason. For an if A, then B statement, only the contraposition is true. Therefore, if ~A, then ~B is not necessarily true, but ~B, then ~A is true.

So to go back to the "logic" you describe above. If any biglaw firm lays off associates, it had a drop in business. The statement, other firms did not lay off associates, therefore it didn't have a drop in business, is not necessarily true. In fact, it is false. GDC, Davis Polk, Simpson (all of whom laid of associates, by the way, just not to the extent of Latham) experienced a huge decrease in business. Especially Davis Polk, whose expertise in the capital markets was useless because... well... the capital markets were frozen.

[seriouslyinformative]

But it just goes to show that clients were choosing other law firms over Latham during the economic downturn.

Child, clients weren't choosing any law firms in the economic downturn. It wasn't as if they decided to take all their M&A and private equity work to other firms. There was no M&A and private equity work to offer to law firms in the first place.

[seriouslyinformative]

And they if they start firing associates, that tells partners that they don't have the work to keep those associates busy. And that's a bad thing.

Hooray! It's like the rising 2L just got a grasp of law firm economics. Yes, it's a bad thing if partners don't have work to keep associates busy. But guess what! Latham wasn't the only firm that experienced that. Nearly every V10 experienced the same thing. And if you're a partner who cares about money, you're going to want to go to a firm that's willing to slash and burn to maintain your level of compensation. That's why the willingness to lay off associates in this context is a good thing for partners.

[seriouslyinformative]

But if the clients see the firm starts hiring again, they think they are profitable again and less worried.

Oh geez it's you again. Clients don't give a shit if the firm starts hiring again. How the firm manages itself is the firm's problem. Clients don't care. Clients just want to see work get done and work get done well. If they're consistently getting that, despite whatever internal problems Latham had, then the hiring status of the firm is inconsequential to them. How hard is this to comprehend?

I think the OP is important in that it points out that the same management is still in place and they know they can do stuff like this again

This is also the part that gets me. Management at ANY firm will do the same thing if business dries up as much as it did. People at S&C weren't "safer" because S&C management was benevolent (LOL); they were safer because luckily their firm wasn't so invested in precisely the work that disappeared and they became the go-to firm for a lot of financial crisis work. That Latham didn't get the work doesn't speak to something problematic about Latham; S&C is just a storied Wall Street firm with the connections and reputation to pull that off, where Latham–as an out of town firm–was already at a disadvantage with respect to getting that type of work.

[seriouslyinformative]

Latham suffered a serious recruiting hit. At NU they had to start calling back rejected students because their yield sucked. Did they still get people? Sure. Did they get top grads like they used to? Everyone who had the grades go to a different V20 did. I don't think getting top grads even matters but law firms like to pretend it does and they're losing by that measure.

I can speak for my school. The students who ended up at Latham (and we have a ton) this summer are pretty talented. They "had the grades to go to a different V20," and they had the offers too. I asked some of them why they chose Latham. A lot of them seemed ignorant as to what happened there, and only one acknowledged that he chose Latham knowing that they had done the layoffs.

[seriouslyinformative]

The fact that "Lathamed" is still used widely as a verb speaks to this fact (as you probably realize, you never hear anyone say "Yeah, they White & Cased a bunch of attorneys last week").

This type of reasoning is dumb. People have many reasons for turning names into verbs. One huge reason is that it's easier to say "Lathamed" than "White & Cased." Are you now going to say Latham is less prestigious because it's phonetically easier to turn the name into a verb? No. And as far as firms are concerned, I'd much rather be at Latham than any of the other firms on list of top 10 firms per amount laid off.

[seriouslyinformative]

ITT, Latham SAs and associates rationalize working for a bunch of backstabbing, heartless assholes.

ITT dumb guy makes dumb assumptions? I don't work at Latham. Several here know who I am and can vouch for that.

[RVP11]

I'm shocked their vault ranking jumped back up.

It's a GREAT place to be an equity partner (very high PPP, high leverage, "partners first, women and children second" attitude), so they attract quite a few all-star rainmakers who get staffed on important matters for important clients. It just sucks to be an associate at Latham.

All the same can be said of places like Dewey and Cahill, too, though.

So what?

So the fact that it's a great place to be an equity partner, with very high PPP and high leverage, and all-star rainmakers, isn't a good enough explanation for why their Vault ranking is so high. Because the same things apply for Dewey and Cahill, but they are not highly ranked.

[RVP11]

"Lathamed" basically developed because XOXO circa 2008 had a huge contingent of Latham NY poasters who got laid off.

[Bronte]

Seriouslyinformative, did you really just post ten times in a row? Someone ITT recently mentioned "stealth layoffs." What a strange concept. Why would a firm hide something that's a huge plus for their reputation?

[seriouslyinformative]

So the fact that it's a great place to be an equity partner, with very high PPP and high leverage, and all-star rainmakers, isn't a good enough explanation for why their Vault ranking is so high. Because the same things apply for Dewey and Cahill, but they are not highly ranked.

I never said that these firms are or should be ranked high because they're great places to be equity factor. I'm just saying that Vault rankings aren't entirely based on which firms were "good" to their associates, and that other rankings (i.e., Chambers, Legal500) don't really care how firms treat their associates.

[Renzo]

Seriouslyinformative, did you really just post ten times in a row?

Seven, by my count. But that still seems ban-worthy.

[seriouslyinformative]

Seriouslyinformative, did you really just post ten times in a row?

I was responding to all the posts. I preferred not to make a super long one.

Someone ITT recently mentioned "stealth layoffs." What a strange concept. Why would a firm hide something that's a huge plus for their reputation?

You're completely distorting my point. I'm beginning to think it's either because you really are that dumb or that it's intentional. Either way, I never said layoffs are a "huge plus" to a firm's reputation. I'm just arguing, in this thread, that a firm's reputation depends on the perspective. From associates judging the caliber of the firm? Layoffs mean jack. From partners judging the firm? Layoffs may be a good thing or a bad thing, depending on what the partner looks for in a firm (if they want $$$, willingness to lay off is good for them). From clients judging the firm? They don't care. Not one lick. From associated judging where they should work? Layoffs matter, though I doubt Latham ranks high on the "Best Places to Work For" rankings. From prospective associates? Layoffs matter, though memories are indeed short.

Different firms had different strategies for laying off the way they did. Stealth layoffs might be great from a firm's perspective, because it might reduce the morale hit of openly laying off people, disguise the number of people actually laid off, reduce the severance the firm has to give, etc. On the bad side, stealth layoffs are probably worse for the laid off associate, as being fired for "performance" reasons makes it harder to find a job than being fired for "economic" reasons. Now I'm not saying that Latham's strategy was objectively better one than the strategy employed by other firms. So far, though, it doesn't seem to have worked against them.

What makes me laugh here is that a bunch of people ITT are making fun of a firm and saying it's reputation is "done." It's funny because none of you is a client or a partner. You're all going to come back to me and say that I'm neither as well. That is true, of course. But I have a bunch of rankings on my side (Vault, Chambers, Legal500), and the League Tables. If Latham's reputation was hit that badly, they wouldn't be at the top of these rankings.

Now I'm not arguing that Latham's reputation couldn't be terrible in the future. Maybe as the talent chain works itself through, the firm's overall quality will decline because of their actions in the past. But right now? There's no partner exodus, they have a ton of rainmakers, and they're getting a ton of business. Heck, more partners are joining the firm. If you're looking for a firm whose reputation has been "hit," look elsewhere like O'Melveny Myers: The partner departures have been significant. This is bad from both the perspective of partners and clients. Law students should be looking at this stuff in addition to layoffs. The former indicates some problem specific to the firm, the latter was the result of a general economic crisis that hit almost everyone.