February 19, 2009
THE DAILY TRANSCRIPT
Companies affected by the recession have been cutting costs and tightening the bottom line at an alarming rate. One of the areas getting significantly slashed is the legal budget.
The result has been troubling for the legal community, which is in the midst of a massive round of layoffs from office staff to partners.
“We’re seeing the largest and most dramatic impact at the large law firms,” said Lou Helmuth, assistant dean for career services at California Western School of Law. “The reason for that is that corporate America is abandoning a lot of its corporate dealings, or is scaling back, and those deals are often handled by large firms. “Also, corporate America is postponing its large litigation efforts because there’s so much cost associated with that.”
The staff reductions are occurring in conjunction with the end of the fiscal year, which for most firms was Jan. 31, according to San Diego legal recruiter Larry Watanabe. Firms now can assess their cash flow, take a look at inventory and see what’s in the pipeline.
Law firms are trying to position themselves for the best chance to survive the downturn as well.
“By shedding expenses now, it gives you the best opportunity to have a healthy balance sheet at the close of this fiscal year,” said Watanabe, a partner at the search firm Watanabe Nason LLC. “It won’t have any effect if you do it in June. Hopefully you preserve capital and maintain profitability.
“It’s what every major corporation in American is doing.”
San Diego has not been spared the downsizing with firms like Luce, Forward, Hamilton & Scripps, Cooley Godward Kronish and Morrison & Foerster trimming numbers at their local offices. Area firms with a heavy emphasis on real estate and transactional work have been particularly hard hit.
Watanabe said he expects to see more layoffs in the near future as no one is sure when the economy will pick up.
“If things don’t improve by the middle of the year, there’ll be another round of trimming,” he said. “They’re going to look for lines of efficiencies.”
In order to bolster funds, law firms have raised the capital contribution requirements of their partners to 40 percent of their income, Watanabe said. The capital requirements used to be in the 20-percent range. Law firms also are resisting raising their billing rates, like they typically do at the beginning of a fiscal year, according to the legal recruiter. Partners are being given greater flexibility on setting billing rates.
Some law firms are eliminating or greatly reducing their summer associates programs. Luce Forward recently rescinded job offers to all third-year law students from their 2008 summer program and have canceled the 2009 summer program altogether.