Weil, Gotshal & Manges LLP, a 1,200-lawyer firm that handled the largest bankruptcy in U.S. history, plans to fire 60 salaried attorneys and 110 staff and cut some partners’ pay.
Barry Wolf, executive partner and chairman of Weil’s management committee, today attributed the cutbacks to a falling off in restructuring and litigation work linked to the 2008 financial crisis and to a “new normal” lower market for transaction activity.
“We must now make the adjustments we avoided over the last few years to position the firm to continue to thrive,” Wolf wrote to Weil Gotshal employees and partners.
The firm will deemphasize its complex commercial litigation practice in Houston and Boston, he said in the memo. In addition it will make “meaningful compensation adjustments” for certain partners, which may prompt partners to leave the firm, according to the memo.
The firm was ranked the 13th in gross revenue last year by the American Lawyer, a trade magazine, at $1.23 billion. The firm’s profit per partner was $2.23 million, the magazine said.
Wolf said in the memo that the bankruptcy and litigation practices, notably on behalf of Lehman Brothers Holdings Inc., has enabled the firm to not make reductions as a result of the fall off in legal services after the 2008 financial crisis.
Lehman, which is still liquidating after exiting court protection last year, paid Weil, its lead bankruptcy law firm, $454 million through the end of last year. It filed the largest bankruptcy in U.S. history, measured by debt.
Weil has been the No. 1 bankruptcy firm for decades representing almost every historic restructuring from Enron Corp. to WorldCom Inc.
Big public company bankruptcies peaked at 91 in 2009, falling to 35 in 2010 and just 24 last year, according to a database maintained by Lynn LoPucki, a professor at the University of California, Los Angeles, who tracks annual filings.
Lehman became the most expensive bankruptcy in U.S. history in April 2010, when it topped the record $757 million tab for energy trader Enron Corp.’s three-year liquidation, according to Lopucki. Lehman fees surpassed $2 billion by December 2012.
“The wind-down of Lehman, and the general dearth of big Chapter 11 cases is undoubtedly to blame” for Weil’s layoffs,” said Stephen Lubben, a bankruptcy law professor at Seton Hall University School of Law in Newark, New Jersey. Generally, those hardest hit by layoffs when Chapter 11 work is slow are “mid-level to senior associates, who earn higher salaries,” he said.
Weil’s lawyer reductions are not the firm’s first since the financial crisis hit. In June 2009, the firm fired 79 staff members in offices across the country and asked summer interns to defer start dates. In 2007, Weil lost a key bankruptcy partner when Martin J. Bienenstock, the lead counsel on Enron, moved to Dewey & LeBoeuf LLP in 2007. Bienenstock is now a partner at Proskauer Rose LLP.
“Restructuring departments have better chances of expansion and survival if they also specialize in related and faster growing fields, such as corporate governance,” Bienenstock said today in a telephone interview.
Weil is also not the only prominent law firm to cut lawyers. Patton Boggs LLP fired 65 staff members in March, including 22 associates. A firm spokesman confirmed today that 17 partners have announced their intention to leave the firm.
Other firms have been more stealthy about lawyer firings, Peter Zeughauser, a law firm consultant and founder of Zeughauser Group LLC said in an interview.
“It’s been going on at a number of firms all year, but Weil is a significant story because it’s a New York firm and highly successful,” Zeughauser said. “It’s an indication of how pervasive the overcapacity in the industry is.”
Zeughauser says the Weil firings are part of the right sizing that has been going on for some time, as far back as 2009 when Latham & Watkins LLP fired 190 lawyers and 250 staff.
“It’s not just that less is coming in,” Zeughauser said, “It’s a sign of the rising role of LPO’s and contract attorneys that are filling a need that clients have been long demanding, which is they don’t want to pay these kind of prices for first to third year associates.”