Major law firms are weighing pay cuts for partners against unseemly staff layoffs as billings plunge

• As the novel coronavirus brings business to a halt, major law firms are considering taking action to shore up cash and maintain profits.
• Actions being considered range from across-the-board pay cuts to staff reductions, according to sources with direct knowledge of the matter including chairs of firms and advisers to them.
• A firm chair at one of the top 50 grossing law firms in the country said many law firm leaders were considering "right-sizing for the new world," with actions that would affect both attorneys and staff.
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As the novel coronavirus continues to bring business to a halt, major law firms are considering taking action to shore up cash and maintain profits.

Moves being considered range from across-the-board pay cuts to staff reductions, according to people with direct knowledge of the matter including chairs of firms and advisers to them.

"We are resisting either approach for now, but will have to reassess at the end of April," Mark Stewart, the chair of Philadelphia-based law firm Ballard Spahr, told Business Insider in an email.

"The countervailing consideration, as you might expect, is that most firms cannot afford to lose top associates," he said. "We held on to most of ours during the recession and that proved to be a wise strategy."

Stewart's assessment - that he would review the results of end-of-March billings before taking action - was echoed by other firm chairs Business Insider spoke with, though others declined to speak on the record.

Another firm chair at one of the top 50 grossing law firms in the country said many law firm leaders were considering "right-sizing for the new world," with actions that would affect both attorneys and staff.

"Firms are modeling worst case scenarios including potential reductions in billable hours of 50% or more over the next 3+ months," said Kent Zimmermann, a consultant to law firms with Zeughauser Group, in a text message.

"Almost everyone I have been in touch with over the last two days, across more than a dozen large firms, is considering all options to keep their firms as resilient as possible."

This, he said, includes possible layoffs, reduced partner pay, deferred expenses, and cutting discretionary spending. "Many are also talking to banks about their credit lines."

'A Moral Dimension'

As to who is doing what, exactly, is less clear, as law firms generally guard their private management decisions and are sensitive to being perceived as ruthless in light of the global pandemic and calls in Washington for large companies to preserve staff.

Partners at many firms including Paul Hastings, Morgan Lewis, DLA Piper and Blank Rome, either declined to comment or did not respond to a request for information about how they are managing the crisis.

The management decisions are delicate because these law firms are among the country's richest, where partners at top firms pull in seven-figure pay checks, while staff members - secretaries, receptionists, event planners and others - earn a more modest living on five-figure salaries.

"There is going to be a moral dimension to this," said Bruce MacEwen, an independent consultant to law firms who writes columns about firm management on his website, Adam Smith Esq. "Are you going to try to do the right thing, or the expedient thing?"

MacEwen said that he would advise firms to conduct across-the-board pay cuts, rather than staff cuts, because they reflect what he called a "shared sacrifice."

"I think it's much more humane and it's better business to ask everybody to take a 10, 20, 30% cut in pay, than to say, OK, 10, 20, 30% of you have to go so everyone can make 100%."

Other law firm partners and their advisors expressed similar concerns about what kind of a message an overall staff reduction would send to the market and their firm internally.

William Brandt, an advisor to law firms on restructurings with Development Specialists Inc., said that with firms likely working remotely for most, if not all, of April and maybe beyond, they were beginning to consider shrinking their administrative overhead by slimming down staff.

That, he said, seemed to be an easier task to accomplish, since working remotely was going better than most firms imagined.

But he said firms should seriously consider their actions.

"The current winds in Washington seem to politically favor those enterprises that do their utmost to keep their work force in place and on salary during these turbulent times, and therefore off the public dole," he said.

Generally speaking, larger businesses are expected to keep employees intact as much as they can when the overall economy is hurting, he said.

"Which large law firm wants to take the brunt of the negative press that will surround their 'Snidely Whiplash' decision to put the lower rungs of their employees out of work right now in an endeavor to protect the incomes of partners?" he said. "Not a pretty public image, and one that I think law firms should work to avoid at all costs for the time being."

Not all firms considering cuts

Some partners, when asked about the possibility of firms considering cuts, bristled at the thought, saying they would be disappointed to hear of peers considering this.

The prospect of cuts comes at a time when law firms are seeing a drying up of work in many areas including mergers and acquisitions and litigation, with depositions, hearings, and sometimes whole trials delayed. Meanwhile, restructuring work is heating up.

To be sure, cuts aren't being considered at all firms. Sources close to some of the most profitable firms including Paul Weiss and Wachtell Lipton said no cuts were being considered there.

Legal recruiters, meanwhile, reported that law firms were still bringing onboard hires that were already in motion before the coronavirus hit, but that there was a pause placed on new hiring as firms tend to their businesses and assess the damage.

"Recruiting is not top of mind right now," said Alisa Levin, a New York City based recruiter whose firm, Greene Levin Snyder. Levin said at least some of her candidates were still progressing, though, with interviews done via video conference rather than in-person.

"It's still early days," she said.

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