A slowing economy and layoffs are hitting home in several Washington area law firms.
Local firms that have increasingly relied on dot-com ventures for business are feeling a ripple effect from the turbulent stock market and the technology industry slowdown. Some are laying off entry-level attorneys and, in some cases, demoting partners, according to recent research on law firm trends.
Partners who were earning half-million-dollar yearly incomes might be getting by on half that amount. Some even get less.
“It’s because some of the things that were the windfall, the IPOs [initial public offerings] and the high margin matters, just aren’t there,” said Gerry Riskin, a law firm management consultant for Edge International. “That usually results in at least a temporary decline until the law firms adjust.”
Partners are the top managers who divide up the profits at the end of the year after all expenses are paid.
Although last year was a profitable year for many firms, revenue is generally down this year for firms heavily invested in the technology industry.
At the Washington law firm of Skadden, Arps, Slate, Meagher & Flom, take-home pay per partner reached $1.6 million in 2000, according to a survey by Legal Times, an industry weekly publication. First-year lawyers at the firm started at $140,000 per year in 2000, with eligibility for bonuses.
At Arnold & Porter, the law firm with the biggest gross revenue last year, partners earned $670,000.
Among Washington’s top law firms, partners at Arent, Fox, Kintner, Plotkin & Kahn earned the least, $430,000 each. The firm had 96 partners out of 241 attorneys in 2000.
Firms often measure their success or failure by earnings per partner. Some firms appear to keep earnings high by demoting partners, thereby spreading profits among fewer people.
At Sidley, Austin, Brown & Wood, the number of partners was cut by 67, or 35 percent, to 193, according to research published in the current issue of the American Lawyer magazine. Morgan, Lewis & Bockius dropped the number of its partners by 60; Kilpatrick, Stockton by 19; Arter & Hadden by 14. All of the firms have Washington offices.
Carter Phillips, managing partner for the Washington office of Sidley, Austin, Brown & Wood, said any reductions in the number of partners at his firm predated the crash of the dot-com industry.
“It’s not nearly as dramatic as it might sound,” Mr. Phillips said. He described the demotions as a routine personnel and financial move.
Most firms have tried to avoid demoting partners to ride out the current economic downturn, Mr. Riskin said. But that might not last long.
“If things don’t get better quickly, the holdouts will be outvoted by the people who say we need to act,” Mr. Riskin said.
Peter Zeughauser, a law firm management consultant for the Newport Beach, Calif.-based company ClientFocus, said the financial belt-tightening in Washington is part of a national trend.
“They’re managing expenses more tightly,” he said. “Some of them might be less aggressive with associate bonuses. They’re laying off associates.”
Law firms whose peers say were deeply affected by stock market and technology declines seemed reluctant to talk about it in interviews this week.
Officials from Morgan, Lewis & Bockius refused to comment.
One large Washington law firm, for example, reputedly laid off many of its litigation lawyers to focus more on the high-growth business of dot-com companies and venture capital. Shortly afterward, the dot-com industry suffered severe losses, which in turn eliminated the need for much of the venture capital business.
Bill Coston, managing partner for the Venable law firm, said his firm has avoided catastrophic drops in business by making technology and venture capital only one part of a diversified practice.
The firm focuses heavily on litigation, he said.
“The wisdom of having several legs on your stool is that when one area is strong, it can carry an area that may have tapered off some,” Mr. Coston said.
He said his firm has avoided layoffs of attorneys or demotions of partners, but that firms serving the dot-com industry have not been so lucky.
“We’ve been doing quite well as a matter of fact,” said Paul Mickey, managing partner for Shaw, Pittman, a Washington law firm that has many technology clients. “We’re not as busy as we were at this time last year. We’re not involved actively in many IPOs at this point.”
Many of the lawyers who were working on the “emerging market” issues have been switched to other corporate issues, he said.
“The adverse affect of the slower economy has been minimal,” Mr. Mickey said.
He said his firm has avoided layoffs and demotions.
Lee Marks, managing partner for the McLean office of Greenberg, Traurig LLP, said, “The dot-com and venture capital stuff has really dried up.”
The firm relied on the technology industry for some of its biggest growth. He acknowledged that the number of hours Greenberg, Traurig bills to technology firms is lower this year than in 2000, but said the firm still is prospering.
“Our profits per lawyer this year are ahead of last year,” Mr. Marks said. “We do a lot of work in this office that is unrelated to the dot-com work.”