February 2009 Archives

Periodically, I feel it incumbent upon myself to report to you, Dear Reader, my indispensable audience, on what I know about the "Adam Smith, Esq." community.

So, based on reader surveys and stats logs from my hosting company, and without further ado:

• 73% of you are in the US, 27% of you not.
  • The leading non-US countries, in order of readership, are the UK, Canada, Australia, and Hong Kong. After that it's anyone's bet, including one reader (self-reported) in Kazakhstan.
• About 30% of you are in AmLaw 100.
• About 55% of you are in the AmLaw 200.
• General counsel are a minute readership: < 1%.
• Most of the rest of you are:
  • Staff or other "non-lawyers" in law firms,
  • law professors,
  • law students,
  • the media, and
  • "non-law."
• About 30% of you are associates.
• About 22% of you are partners (and compare those proportions to the real world: "Adam Smith, Esq." skews towards partners).
• Among partners, a disproportionate percentage of you are on the management/executive committee
• Among people on the management/executive committee, a disproportionate percentage of you are managing partners.

So that's your profile.

A few other facts about the "Adam Smith, Esq." profile:

• I started the site at the very end of 2003.
• There are now nearly 1,000 articles (you'll hear about it when we hit that milestone).
  • And yes, I write every single word myself--with the obvious exception of guest columns, which you can count on the fingers of one hand.
• Site traffic is about a third of a million page-views per month: A recent low might be 310,000, and a recent high might be 360,000, but a third of a million seems a fair approximation.
• About 3,000 of you subscribe to my monthly email newsletter.

So concludes the report to readers.

Except for one last all-important question: What would you like to see more or less or different coverage of?

Please let me know. And rest assured that the editor and publisher is always in.

The Latham news is of course all over the place: The WSJ Law Blog, Above The Law, The AmLaw Daily, LegalWeek, and etc.  The figures are, frankly, grim:

• 190 associates laid off, or about 12%;
• 250 paralegals and staff, or about 10%; but
• As of this writing, no partners (of whom there are 550).
• Finally, the start date for the class of 2009 is postponed to December, with an option to defer to October 2010, in which case the firm will pay those electing the year-long deferral $75,000 and encourage them to pursue volunteer work or community service.

One admirable and salutary part of the story is the severance policy associated with this:  Six months salary, capped at $100,000, as well as six months of health coverage.  As Bob Dell rightly says, this is "quite a bit above market."  Indeed, if you believe this table, it's double the approximate "going rate" of 3 months.  Classy.

So those are the facts.  What does it mean?

At the most prosaic level, it reflects the knock-on effects of the global economy hitting a brick wall.  (Actually, it hit the wall so hard that it bounced off backwards, as the just-revised 4Q2008 GDP numbers for the US showed, with a 6.2% contraction.)  When the economy experiences that, so do your clients, and then so does your firm.  It is as unfortunately predictable and seemingly inescapable as one billiard ball hitting another and then another.

This observation is simplistic only to the extent that it ignores how different firms will be hit in different ways—and how some, based on a delightful if sometimes random confluence of their practice mix, will dodge the gunfire altogether.  This is a period where "averages" will be particularly misleading. 

But that may be part of Latham's problem, in a suddenly-unfortunate way:  The simple fact that the firm is so global, and so diversified in its practice mix, makes it almost the law-land equivalent of an "index fund" representing the overall contraction in global legal spend.

Next, what absolutely positively must be said is how terribly sad and indeed frightening it will be for all those affected.  Now is not the time when you want to be abruptly looking for work.  "Adam Smith, Esq." is a tiny tiny enterprise, and for all of you who may be in this deeply unfortunate boat:  For the record, we're not hiring.  But for those of you reading this who might conceivably have an opportunity to offer, I urge you to act posthaste.  The people affected are not finding themselves on the street for "performance" issues, nor are they there through any fault of their own.  Throw what lifelines you may have.

Other observations from a management and strategic perspective:

• It is always and everywhere best to do these things in one big whack rather than through a thousand cuts, or—unforgivably—through "stealth" layoffs.  We can only fervently hope this one whack will be the last, but as we are learning on pretty much a daily basis, these days no one can make any promises.
  
  
• One must assume, although no details on this score have come out, that the review and cull are "strategically selective," as opposed to 10% across the board.  You will have noticed that all four of the Magic Circle firms who have announced "redundancies" have made a point of emphasizing that they were all in the context of re-sizing the firms to (we hope) better align with what they forecast to be market and client demand.  Again, while no one has a crystal ball, some things are clearer than others, and I would be shocked to hear that anyone in restructuring has been let go and equally shocked to hear that no one in securitization has been affected.  In other words, as nasty and "profoundly regret[table]" (Dell's words) as these decisions are, you can make them smartly or make them dumbly.  I have to imagine Latham is too well-managed to have done the latter.

Why were no partners affected?

I have a hunch, which Dell obliquely confirms when he remarks that "current and future client demand would likely require less leverage."

My theory—which I'll devote more ink to in future—is that, among many other things, we as an industry are going through our own "de-levering" period, and that on the other side of this interregnum firms will, by and large, have lower associate: partner ratios.   Many are the implications of that, presuming I'm right, but Latham seems to be acting as if they think it's accurate.

Finally, this morning's news out of Latham tells us something with all the emphatic insistence of a fire-truck air horn:  Firms are businesses.  I hope that by now that comes as news to no one.

Before firms can live to thrive again another day—which, trust me, they will—they first have to live. 

Call it what you will (carrying excess human capacity, being underutilized, supporting fallow and unproductive assets), it's simply not viable in a competitive marketplace to have a substantial proportion of the people on your payroll sitting around with too little to do.

That is also bad for morale, bad for professional development, unattractive to talented candidates you might want to recruit, and, finally, less than useless to clients.

At the moment, understandably and inevitably, we are all focused on the "destruction" inherent in Joseph Schumpeter's powerful insight about how capitalism repairs and reinvigorates itself.  It would be much more fun if we could focus on the "creative" dimension.  But not yet.  Not just yet.

America has been through many crises and challenges before, far worse than what we're experiencing today. Need I mention (keeping it to economics and not including wars), the hardships and deprivations brought on by the Civil War, the long depression of 1873-1895, the Great Depression itself, the grinding stagflation of the 1970's. That we're facing a new challenge is not existentially threatening.

The problem is that many of us seem to feel it is, or at least that's the way the media is reporting it and, frankly, the way our political leaders seem to be responding to it--this is a crisis, they reiterate, and unless precipitate action is taken, disaster looms. Pass a three-quarter of a trillion dollar package this week, or else.

Robert Shiller, an economics professor at Yale, and co-author (with George Akerloff) of the just-released "Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism," has this to say in today's New York Times:

"People everywhere are talking about the Great Depression, which followed the October 1929 stock market crash and lasted until the United States entered World War II. It is a vivid story of year upon year of despair.

"This Depression narrative, however, is not merely a story about the past: It has started to inform our current expectations. [...]

"The attention paid to the Depression story may seem a logical consequence of our economic situation. But the retelling, in fact, is a cause of the current situation -- because the Great Depression serves as a model for our expectations, damping what John Maynard Keynes called our "animal spirits," reducing consumers' willingness to spend and businesses' willingness to hire and expand. The Depression narrative could easily end up as a self-fulfilling prophecy."

I recommend perspective. Perspective not that we deny the severity of this near-depression. To be sure, there are plenty of reasons to worry:

• It's global in nature;
  
  
• It has come upon us with shocking, whiplash-inducing speed;
  
  
• It seems inexorable, deserved, the Puritanical comeuppance for a decade or more of living extravagantly in "sand state" McMansions, furnished with super-large flat panel TV's and navigated by Hummers, consuming energy recklessly; and to the extent this narrative rings true we feel chastened, like children rightly sent back to our rooms after immature behavior, and the small voice in the back of our minds chants "we deserved this, and we brought it on ourselves, so we have no ground on which to resist or fight back;"
  
  
• It's striking at the heart of our 21st Century economy, the financial sector, as opposed to being a classic inventory hangover, consumer pullback, sustained oil price spike, or isolated tech bubble;
  
  
• Speaking parochially about our industry, we have been joined at the hip to the financial services sector for as long as the boom was going on, and even before that. The New York "white shoe" firms all made their reputations on core connections to bulge bracket investment banks, and to some extent those reputations lived on until the very recent past. I suspect they'll endure beyond this interregnum, in fact.

But let's get back to perspective.

I believe two characteristics will separate the strong from the weak firms coming out of this episode. They are: (a) cultural glue; and (b) the quality of leadership.

As for "cultural glue," you had it going into this episode or you didn't. If you didn't, I sincerely wish you the best of luck, and I hope you seize this opportunity to build some, ASAP. If you have it, on the other hand, now is the time to capitalize upon and reinforce that. Other than that, I don't have too much more to add about the strength of your culture. It takes years and years to build, as does trust, and (see: Spitzer, Eliot) can be destroyed in an instant.

This brings us to the quality of leadership.

I believe this will be the key differentiator in this period. We talk about "leadership" interminably, but we do so for a reason. It matters.

Jeffrey Sonnenfeld, President and CEO of the Chief Executive Leadership Institute at the Yale School of Management, was recently interviewed about what leadership entails in this environment, and here's what he had to say (emphasis supplied):

• "In times of genuine crisis, leaders do not have to use fear to alert people about the need to change from the status quo. When the place is on fire, it is counterproductive to frighten people. In battle, no one needs to be motivated.
  
  People want to know that their leaders are competent enough to see them through this crisis. They don't have to like you; they have to know that they can place their faith in you because you have thought it all through"
  
  
• Successful leadership in this era comes down to four critical points.
  
  The first is personal accessibility. We've seen CEOs in times of crises try to circle the wagons and stonewall the media and other stakeholders. That's not the way to go. It's critical to be out there.
  
  The second trait of an effective leader in crisis is empathy. Show some compassion for those hardest hit.
  
  A third quality has to do with authenticity and believability. [He proceeds to talk about how Wall Street executives performed, or didn't, on Capitol Hill recently, and excoriates those who dissembled and seemed to be unprepared.]
  
  The fourth great quality of leaders in crisis is that they don't let the stress of the present preclude the boldness, courageousness, and thoughtful prudent risk-taking that is still vital to success. These leaders understand that we still have to get out there and be in business. We're not running libraries and museums; we're running dynamic enterprises that can't be afraid to take calculated risks.
  
  It's really tough times that bring out the greatness in leadership. Disappointments, barriers, setbacks - they are all the punctuating moments that really define a heroic career. You don't know how good an executive is until times are tough. As such, this is the time when corporate leaders can really distinguish themselves and really punctuate successes as outstanding leaders.

Study after study, time after time, has shown that Americans are the most optimistic of all nations. It's time to invoke that.

There's no sin, hereabouts, in getting knocked down. The sin--and an unforgivable one--is in not getting back up.

It will soon be time to get back up. Wall Street may be dead for now, but it's Lazarus. It has reinvented itself every decade or so for as long as I've watched it. And our firms are the handmaidens to its serial reinventions. The notion of the "Wall Street law firm," or the international law firm with a Wall Street practice, should not yet be read its last rites.

Prepare to be optimistic. Prepare to be an American. Prepare to lead.

When non-lawyers ask what's happening in the world of law these days (i.e., what ATL is covering), our first response is usually one word: layoffs. It's been a dominant theme in our coverage since the fall.

—Above The Law (today)

While I might nominate that quote for Understatement Of The Season, I cite it for an entirely different purpose:  Are there any alternatives to layoffs?

Actually, I don't believe there are any "pure" alternatives to layoffs, at least not in the economic sense of "substitutes," for firms under serious financial stress.  But I'd like to suggest there are "complements" (economic sense) to layoffs. 

[Jargon digression:  In economics, "substitutes" are goods or services that people can trade off between without drastic disruption or deprivation, such as coffee and tea, bagels and muffins, or red and white wine.  As you can tell from these examples, there are rarely perfect substitutes—we all have our preferences—but if our favorite is unavailable or exorbitantly expensive, we will make do with the alternative and carry on.  "Complements," by contrast, are goods or services that tend to go together.  Think coffee and sugar, bagels and cream cheese, or red wine and bread.]

In the land of law firm layoffs, it's all too easy to understand why so many firms are resorting to them in this unprecedented environment. 

Forgive me if what follows strikes you as simplistic (good for you if it does!), but I find myself explaining this to people with a frequency that suggests it's not widely understood.  Consider hypothetical BigLaw firm in 2008 and 2009:

Obviously, these numbers are simplistic and you can quibble with the details and assumptions, but the message is powerful:  Law firm P&L's are highly leveraged. In the good times, this is your best friend:  Every additional dollar of revenue drops almost intact to the bottom line.  But in the bad times, this is your worst enemy.  A 1% drop in revenue can--all else equal--lead to a 3% drop in profits.

What, then, to do?  As the famous advice has it, "Follow the money."  The money, in this case, is associate and staff compensation.  Together they are to a law firm's expenses as Social Security and Medicare are to the federal government's budget:  Enormous.  If you need to cut a lot of expense at a law firm, you don't have many alternatives but to look there.  (I'm assuming all your office leases are long-term and not readily renegotiable, especially in this environment.)

The bad news, of course, is that cutting associates and staff used to be viewed as being as untouchable as trimming Social Security and Medicare would be. But not any more. If we've learned nothing else from the drumbeat of layoffs in the US and the UK, it is that there is no stigma attached to them today.

While we're at it, let's not limit the casualties to associates and staff. Everybody ought to share the pain, including equity and (if you have them) non-equity partners. It cannot be true that every single person in category X (say, partner) is irrebuttably indispensable while everyone in category Y (non-equity) is subject to scrutiny. Note to those keeping score at home: Cutting partner ranks will also distribute the diminished profits over a smaller pool, making the hit to your PPP less, percentage-wise, than the hit to your total P.

So if the base case for the inevitability of resorting to layoffs has been made, how can we do it more intelligently? How can we be more intelligent and less reactive, more scalpel and less meat-axe, more humane and less brutal?

Let's go back to "complements."

I suggest there are a variety of techniques you can employ, not as "substitutes" for layoffs, but to enhance their cost-saving impact and trigger other savings. Let me add that, with some degree of consternation, I don't see very many firms implementing these "complements." If this column has no other purpose, it's to change that myopic behavior.

• Reduced hours for reduced pay. Forgive me, but this strikes me as blisteringly obvious. We've heard bellyaching throughout the boom years about "work/life balance" and so forth, usually to imperceptible effect, but now we have an opportunity we can embrace with gusto. Of course, the reaction of associates invited to partake of this bonanza may suddenly be less than enthusiastic. "Be careful what you wish for?" Still, you should think about it.
  
  
• Sabbaticals. Whether paid, unpaid, or inbetween, consider granting (requiring?) people to take a period of time off. Don't permit them to do nothing, however; make sure the expectation is that they will do something related to broadening themselves, learning, professional or cultural or emotional or even artistic development. You might be surprised at the new imaginations they'll return with. And in the meantime you'll have economized while maintaining loyalty.
  
  
• Shared jobs. As with our first suggestion, this is one that was oft requested and rarely honored during the boom: "Impractical and unworkable." "Clients won't stand for it." "Shirking by another name." "How entitled do they think they are?" Permit me to suggest the world has changed. Think about this again.
  
  
• Salary freezes. Been there, done that, and how shocked are you that the reaction has been so placid? Which brings me to:
  
  
• Salary cuts. I don't know if you read it here first, but it matters not where you did. Economists famously and widely insist that wages are "sticky downwards," which is their awkward formulation of the highly common-sensical notion that people hate to see their pay (at the same employer) actually drop. But these are not ordinary times, and there are ample reasons to think that people would be surprisingly amenable to this revolutionary concept:
  • Today, a job--almost any job, much less a highly respectable one at BigLaw--beats no job. Enough said.
  • There's value in shared sacrifice. Taking a hit, collectively and communally, to preserve the firm's community, is not a hard stretch or leap of the imagination for people today.
  • Dollars go farther than they did 18 months ago. Have you noticed that housing has gotten cheaper? That cars can't be given away? That "70% off" is the minimum required to get people off the street and in the door? That everyone is suddenly very very negotiable on price?
    

I'm not suggesting my list is exhaustive; it's meant to be suggestive and (we can always hope) creative.

Now's the time to innovate. Given what a straight-line extrapolation of current reality would look like, somebody better.

Update:  23 February.  I received the following correspondence from a 1L at a top ten law school.

Greetings from Law Student Land.

What an intense time to be a 1L. Just thought I'd share a few thoughts and reflections, especially as they relate to your latest column.

First, never have any doubt about the attention paid to Above the Law at the student level. Personally I have serious misgivings about that site's position as the main conduit of information between associates and management. However, looking around my Crim class the other week on that famous thursday and watching everyone tick off the layoffs as they happened, I was struck again by the power of the instant press on firm recruiting and retention.

Secondly, and building on my first comment, note this story: ( http://abovethelaw.com/2009/02/nationwide_layoff_watch_mckee_1.php ) for an example of the sort of press that will make a difference in July, when my class at [*****] begins bidding for interview slots at firms. As I'm sure firms are aware, students aren't going to be able to exclude all of the firms that have made layoffs from our job search.

However, the process by which firms lay off their associates is a chance for us to "look under the hood" at the interaction between management and associates at different firms. I am certain that firms who conducted "stealth layoffs" or that swung the scythe heavily through the first-year ranks will be penalized come recruitment time. Which is not to even mention the debacle over at Pillsbury last week.

Lastly, I note with satisfaction your mention of work/life balances issues in your latest column as a way to trim firm expenses. Sadly, it seems that though firms have realized they will need to adapt to a changed business environment, they have so far acted with the lumbering (be-suited) herd mentality that so regularly characterizes their behavior.

Someone has told them that layoffs are ok, and so they are going to attempt to cut staff numbers until their profit margins return to normal. While wages are surely sticky, they are not stuck. I am lucky enough to have secured an associateship with a firm this summer. The firm I am headed to pays its associates below the "New York rate" but in a secondary city. I am told that associates work around 50 hours a week. This strikes me as a fair bargain, and one that many of my classmates would willingly make. It seems to me that even firms that are known as "sweatshops" could create a 75% work schedule in which pay is cut in relation to the chosen billable hour requirement. The idea of a sabbatical seems like an ingenious way to temporarily de-equitize partners until work picks back up.

All of which is just to say that I think your concept of where the general mood of the lowest rung of the ladder is these days is fairly accurate. Keep up the good work.

[After I asked my correspondent whether I could have permission to republish his thoughts:]

I have no problem with being anonymously quoted. I think this is clear from my comment, but just to be sure, the scheme I am advocating is less hours for less pay, as opposed to a straightforward pay cut. I don't think this would be too much of a problem, as I am under the impression that there aren't enough hours to go around at the moment. I'm also generally not in favor of having an across the board pay cut in exchange for a promise of no layoffs. Obviously, this would reward under-producers at the expense of the hardest working associates. I think generally we as students expect firms to approximate the level of attrition that they have in good times, and therefore be prepared for our class when we come aboard in 2011.

Thoughtful commentary indeed. 

Why would it not make sense for firms to offer a tradeoff between hours and pay or, perhaps more audaciously, a tradeoff between the investment made in professional development and training, and pay? 

What I'm suggesting in the latter thought experiment is simply this: If a firm is going to work you to death and skimp on training and professional development (they're non-billable), then shouldn't you expect to be paid handsomely for your pains? Conversely, if another firm is willing to devote significant resources in time and money to an intense training effort, shouldn't you rationally be willing to accept a lower salary, recognizing that you're investing for your future in a non-monetary way?

The remarkable thing is that it seems to work in other industries—witness the old joke about how the publishing industry is a wonderful place to get training "if your parents can afford to send you there."

Within the space of 15 minutes late this afternoon I got calls from both Bloomberg News and The American Lawyer asking me what was going on with all the layoff announcements hitting the wires today. So this was not your ordinary day, and even though "Adam Smith, Esq." has a firm policy against covering breaking events, this seems an outlier warranting an exception.

I used to be keeping a list of layoffs, but I've lost track; I decided to leave it to the statisticians, of whom we will have no shortage. Today alone we've had announcements from (random order) Epstein Becker, DLA Piper, Dechert, Holland & Knight, Cadwalader, Bryan Cave, Luce Forward, Cozen O'Connor, Faegre & Benson, Wolf Block (salary cut), and Goodwin Procter--over 600 jobs lost (lawyers and staff) announced in a single day.

Above The Law even has a poll asking what to call today: "Valentine's Day Massacre" appears to be in the lead, above "Black Thursday," at this reading. But I digress.

What's really going on out there?

Frankly, nothing alarming. In recessions, businesses cut jobs. Not to be dismissive, but this is what recessions mean. They are essentially defined by rising unemployment. Why should we be shocked that we are not immune?

When your clients are cutting jobs and truly putting the screws to legal spending, you know that your 2009 revenue will be down. And it's Management 101 to align costs with revenue.

Let's review some of the other salient dimensions of this:

• When Faegre & Benson announced its cuts, it provided one of the more articulate rationales: "We are practicing law in the same challenging economic environment in which our clients are doing business. Like many firms across the country, we are aligning our resources with the anticipated demand for our services."
  
  
• As Cravath's Evan Chesler announced when cutting associate bonuses compared to last year, and in a similar vein, the "principal driver is what's happening to our clients. Every day we're seeing them laying off people. Our conclusion was we needed to be as sensitive as we could be."
  
  
• So we can safely conclude that a large part of what law firms are doing right now is simply trying to match their capabilities (supply) to clients (demand).
  
  
• Last time I looked, total lawyer headcount in the AmLaw 200 was about 120,000. If we've lost 2,000 lawyer jobs, which I think is an exaggeration, at least in terms of public announcements, that's less than 2%.

But it remains an oddity why so many firms announced cuts today. I think it's just that--an oddity. Like tossing a coin and getting 4 heads in a row. Weird and unusual, to be sure, but indicative of precisely nothing.

On the other hand, there are good reasons we are seeing announcements of rounds of layoffs right about now:

• Financial results for 2008 are now in, and there can no longer be an argument in many firms that "we need to wait to see what the numbers actually are" before making any decisions. Lawyers are, among other things, believers in evidence, and the results of 2008 are now in evidence. I can imagine that many tentative decisions which were awaiting confirmation by the final numbers were pending, only to be announced this week.
  
  
• Similarly, no one wants to be so heartless and inhumane as to fire people during the holidays. This would explain the withholding of layoff announcements during December and early January.
  
  
• During end-of-year discussions with clients about collections and expectations for 2009, you have to believe that some reality checks were put in place about what level of revenue firms might expect gonig forward. If those expectations are now built in to the firms' 2009 financial models, adjustments in the cost base might be in order.

Finally, let us never underestimate the yin and the yang of the high degree of leverage on law firms' P&L's. That is to say, once you've covered your costs (which are, for the record, people @ ~60%, occupancy @ ~30%, and "everything else" @ ~10%), then essentially every additional dollar of revenue drops directly to the bottom line.

Also, if the average law firm's gross margin is, say, 35%, then--if you do nothing to change your cost base--a 17.5% drop in revenue (highly plausible in this environment) implies a 50% drop in profits.

Add to that the highly liquid market for lateral partners and you have the ingredients for immediate and severe problems.

So am I surprised by firms announcing layoffs? Not in the least. As I said at the outset, that's what happens to businesses in recessions. And finally, if there's any "good" news to be extracted from this, it may be along these lines:

• You did nothing wrong.
  
  
• That layoffs are so widespread indicates that firms with all types of different strategies, with all types of geographic footprints, are suffering along with their clients. This is not like the dot-com downturn of 2000/2001, where everyone who had piled into Northern California at the last minute was burned (predictably, in hindsight). No one predicted this.
  
  
• Hard as it is to reach the conclusion that layoffs must be decided upon, you owe it to your firm to make these hard calls. Not to be melodramatic about it, but you owe it to the people who will survive and thrive in your firm to make the firm the right size to match your clients' demand going forward. Overcapacity in law firms is extraordinarily expensive. Now is not the time that you can afford it.

So is this the "Valentine's Day Massacre?" Here at "Adam Smith, Esq.," we're not much into soundbites.

It may be the day when the stigma of layoffs went away--indeed, it is resoundlingly that, whatever else it may end up being.

My hope is more audacious: That it is one key day in the long series of days that will be needed to bring on the era when law firms' management is truly professional and clear-eyed. And when we can explain to our clients how we're managing as smartly as they are.

So now the "cull" has come to partners in the Magic Circle.

As The Financial Times reports:

The cull of partners at Britain's leading law firms worsened on Wednesday as Clifford Chance unveiled plans for job cuts across its 21-country global office network.

The announcement came just over a week after Linklaters, its rival, revealed restructuring proposals that could lead to dozens of its 500 or more partners leaving.

The shake-ups at the world's largest and second largest law firms highlight how the financial crisis is now biting so hard that it threatens the partners who own and manage top legal businesses.

Clifford Chance said its changes were likely to lead to a reduction in its 633 partners, although it declined to say how many would be affected.

David Childs, managing partner, said the firm had decided to make cuts as part of wider moves to adapt to the impact of the credit crunch on clients' fortunes.

"What we are going to do now is work out what are likely to be the expected needs for legal services over the next three to five years. We are taking a much longer view and a much more forward view," he said.

Mr Childs added that the firm had launched its plan after conversations with clients led it to conclude that some areas of business - such as leveraged financing - were unlikely to recover quickly, while others, such as securitisation, might return in a different form.

The bad news is that layoffs are no longer limited to non-premier firms or those widely recognized to be under stress. The good news, if you care to interpret it so, is that there's no stigma attached to layoffs.

The question then becomes how to "do" layoffs more rather than less intelligently. I suggest there are some lessons inherent in the Clifford Chance experience.

• Don't limit it to associates and staff. This is taking out your anger, frustration, and anxiety on the defenseless. (Did I say anger and frustration?! Yes, on purpose; these are shockingly trying times, and it's not the worst thing to admit that you don't have all the answers. I do not, obviously, recommend indulging what may be a natural, if juvenile, temptation towards anger and frustration. We're all professionals here.)
  
  
• But to get back to the importance of culling partners as well: You must. Don't kid yourself that only associates are the ones with questionable performance and all partners are bulletproof. You know in your heart that's not true (partly because, rightly, partners are held to a higher standard) and now is the time you must act on it.
  
  
• Years ago in New York Con Edison, our local utility, would display a wonderfully pithy sign at worksites where it had to to barricade streets or sidewalks: "Dig We Must." I'm deeply sorry to report that with the decline in colorful English, or the corporatizing overlay suppressing what must have clearly been the inspiration of a single individual with a moment devoted to workplace pleasure and invention, those signs have long since disappeared in lieu of the ubiquitous, bureaucratic, depressing, and uninformative flurorescent orange and yellow tape and pylons with no informative signs.
  
  But today's motto for our industry might be: "Cull We Must."
  
  
• So if "cull we must," how best go about it? You might, for starters, as it sounds Clifford Chance has done, talk with your clients.
  • What do they see coming back sooner rather than later?
  • What do they not see coming back any time soon?
  • What are they willing to continue to pay premium rates for? (You can suss this out without asking directly, I trust.)
  • Where have they come absolutely positively under the gun to reduce outside legal expenses at all costs?
  • &c.
    
    
• Decide whether you view this financial crisis as a year or 18-month long "V" or as a multi-year "U" recession. This, if I may state the obvious, will help you determine how to re-align your firm for the duration.

Finally, I would argue for clarity of communication, internally to your firm and externally to your clients. (I know, it's hard to argue against clarity, but I have a different point to make.) The need for you to speak clearly now to your key constituencies has never been higher. Why?

Simply because people are confused, uncertain, and anxious. Layoffs and "redundancies" are ubiquitous. Revenues are down. Profits are down. Firms are, plain and simple, getting smaller. Now, of course you can't promise people things you can't deliver on, but you can tell them what you know, what you foresee, and what is, at least for the time being, not happening in terms of layoffs.

And it's interesting what Clifford Chance is not doing: They're not abandoning globalization. Childs "stressed that it was "very focused" on developing its work in the US east coast and in Asia. Globalisation of the industry remained the "right model" even in troubled economic times, he said, adding: "Indeed, I think more law firms will go down that route.""

And finally, the last message from the Clifford Chance story: Talk to your clients. You have your pulse on the market, but your clients have their own different and significant and valuable pulse on the market. Listen to them. You might learn something. It could even help guide your internal decisions.

Find out my thoughts on the matter here.