October 21, 2001
THE LOS ANGELES DAILY JOURNAL
By John Ryan
LOS ANGELES – The law firm that fired the first shot in the salary wars has fallen prey to the dot-com collapse.
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, based in Menlo Park, announced yesterday it was laying off 16 attorneys, nine paralegals and 19 support staff.
In his Oct. 11 memorandum to staff, Gunderson Dettmer managing partner Bob Gunderson cited the attacks as the catalyst for the firm’s layoffs.
“[The] events of September 11th have changed the short-to-midterm outlook significantly, extinguishing the post-Labor Day uptick that seemed to be developing,” the memorandum states. Economic Uncertainty
The Gunderson layoffs capped a week in which two other Bay Area-based firms also cut back their associate ranks.
On Wednesday, San Jose’s Skjerven Morrill MacPherson said it plans to lay off 11 of its 98 associates effective Oct. 15.
Also on Wednesday, the 250-attorney Crosby Heafey Roach & May, based in Oakland, let go 13 associates.
Many firms already were suffering as a result of the slumping technology market. The terrorist attacks of Sept. 11 have exacerbated this situation by creating further economic uncertainty.Persistent Slowdown
“I have talked to a number of firm chairs and managing partners since that date,” Larry Watanabe, principal of San Diego-based legal consulting firm Watanabe Nason & Seltzer, said.
“Everybody is thrown into a long pause when asked whether the market will turn around in the near term,” he said.
The problems of Gunderson Dettmer, however, reached back well before Sept. 11. Like the firms that preceded it in the layoff trend, Gunderson Dettmer’s client base has a strong high-tech focus.
The firm led the nation in associate salary hikes in January 2000, increasing the base salary for a first-year associate to $145,000 (including a $20,000 guaranteed bonus). Associates were also eligible for a $5,000 discretionary bonus. At the time, legal consultants questioned the move, while associates cheered Gunderson’s largesse.
The persistent economic slowdown has been particularly cruel to the technology market. Many of the attorneys at firms representing clients in this market have gone idle.
Palo Alto’s Cooley Godward was the first to respond, laying off 85 associates and 50 paralegals on Aug. 23. Local rival Fenwick & West followed on Sept. 6, laying off 32 associates and 15 paralegals.
“Cooley really opened the floodgate,” Watanabe said. “It has become acceptable to lay off people publicly.”
Management teams at both Cooley and Fenwick delayed these layoffs until they became certain the economy would not improve in the months ahead.
Watanabe said that most firms believe the terrorist attacks will delay a turnaround further.
“Lawyer productivity was down in the weeks following September 11,” he said, referring to more immediate effects related to firm overhead costs and salaries. “That’s extremely costly,” he said. “A situation like that can tank a firm’s [fiscal] quarter.”
Jack Nelson, chair of Crosby Heafey’s management committee, agreed that the attacks created greater uncertainty but said he did not see “a cause and effect” relationship between them and his firm’s layoffs.
Crosby Heafey’s layoffs nevertheless suggest that even firms not dependent on the tech market are suffering. The firm is full-service, with more than 35 practice groups.
Nelson attributed the layoffs to “the general state of the economy.”
Tower Snow, chair of San Francisco’s Brobeck Phleger & Harrison, said that the attacks “did not change the lay of the land or in a material way affect our business.”
Snow admitted that September was a slow month for his firm and that economic recovery, in general, may take longer.
“But a slow month doesn’t mean that the work was lost, only that it was delayed,” he said. “That work may pick up in October, November and December.”
Snow has been vocal in his belief that layoffs should be avoided at the expense of firm profitability. He said that neither the terrorist attacks nor the layoffs this week have weakened Brobeck’s adherence to this sentiment.
Although industry observers may differ on how much the attacks affect law-firm business, most agree that the job market has become extremely grim. After all, in just the past two months, five Bay Area law firms have laid off attorneys and staff publicly, admitting economic reasons. At least as many have been laying off associates for performance reasons.
The vast majority of all layoffs have been junior associates from corporate practices. Firms simply are not looking to hire such attorneys.
“Senior associates are easier to place, but the abundance of what we’re seeing are junior associates,” Marnia Brownell, a principal at Palo Alto-based Solutus Legal Search, said.
“We’re still placing corporate attorneys but not like we were a year and a half ago,” Brownell said.
She said that young attorneys may have to refocus their practice areas or be willing to take in-house jobs.
“I think we’ll also see more law-school graduates joining the government to ride the slowdown out,” she said.
Watanabe said that firms even are being more cautious about taking on quality lateral partners. Firm management wants not only books of business but also specific practices that fit into strategic areas of targeted development.
“We are seeing ultra, ultra conservative views of how to manage a business or manage a law firm,” Watanabe said. “It’s the only way for firms to sustain themselves going forward. I think it will continue.”