Whatever the business case for announcing significant down-sizing, there is no doubt that in the field of modern communications Weil Gotshal & Manges scored a significant victory last week in its handling of job cuts.
Confirming its move to cut around 170 staff on 24 June and lower the compensation of 30 partners, Weil was joined up, transparent and eloquent, with executive partner Barry Wolf (pictured) on hand to put a jargon-lite case for its actions. The expected loss of 60 associates is equivalent to roughly 7% of Weil’s associate base.
Most importantly, Weil made available a memo from Wolf stressing its move in the context of structural changes in the market – a ‘New Normal’ that regretfully required substantive action.
While news that a profitable law firm is to become the only major New York player to this year make large scale job cuts is not an easy sell, in PR terms Weil’s candour was an immediate success. Notably the New York Times reported the move largely in the context of the forces that Wolf articulated, as did the Wall Street Journal, though with more scepticism regarding the firm’s attempts to break into Houston’s much touted energy market.
The immediate reaction in the US was to applaud Weil’s realism and agree with Wolf that the 307-partner firm was acting from a position of strength. The implication was clear – and explicitly voiced in some cases – this is just the legal profession catching up with the realities faced by other industries and that other peers would soon follow Weil. The firm was clearly attempting to cast its actions in the narrative of the New Normal – and it succeeded.
So complete was this victory that a US PR site lauded Weil’s communications strategy, citing a ‘lesson in managing bad news’.
Others were even impressed by the firm’s openness in conceding it has made cuts rather than opting for the ‘stealth’ layoffs that are forever supposedly stalking the New York legal community, though cutting that deep would be almost impossible under the table. Weil did offer generous severance terms to its associates.
All this leads to one obvious question: as strong a case as Wolf made for a structural shift in the market, is it correct to assert that Weil was merely reacting to economic fundamentals rather than its own specific situation?
It’s a more debatable point than the initial coverage allowed. For all the gloomy claims routinely made about the pressure on BigLaw, the 2012 financial year saw the majority of US advisers return to boom-time levels of income and profitability. It is unquestionably harder to make money, there is considerably more fee pressure from clients but effectively diversified law firms have so far largely proved more than able to adapt.
The market remains a long, long way from the first quarter of 2009, when demand fell off a cliff and major law firms were daily announcing deep job cuts (Weil was one of the few to buck that trend).
Turning to Weil’s individual performance – it’s not been a knockout run for what is generally regarded as the premier bankruptcy shop in by the far the most lucrative bankruptcy market in the world. The firm’s 2012 revenues at $1.22bn are up 5% over the last five years – a worse showing than most Wall Street peers, some of whom had to get by without huge banking crisis gigs like the bankruptcy of Lehman Brothers. (Weil has earned more than $400m in fees advising on the insolvency of Lehman alone and cited the wind-down of several such assignments as one reason for its cuts).
But while the end of large, work-intensive insolvency mandates are notoriously problematic for law firm work-flows, that is a foreseeable challenge. Cynics will ask if these cuts say something about lack of diversification in Weil’s wider practice, though around 40% of its income comes from litigation. In short, the post-Lehman environment should have been a time for Weil to shine and make strategic ground at the upper echelons of the global legal market. It’s not apparent that this has occurred.
Attention will now focus on its London and foreign offices, though the message is that the job losses are primarily focused on its US heartland.
Weil has undoubtedly been an interesting performer in London, repositioning after a false start focused on banking to build a widely admired private equity and corporate team under head Mike Francies, the deal lawyers’ deal lawyer.
Weil watchers claim its 31-partner City practice is currently facing a quiet period, though Francies and fellow partners insist it remains in growth mode in the UK (a claim backed up by its performance in 2012 when the practice grew an impressive 22% to bill around $110m against a flat firm-wide showing).
The firm has also invested in City litigation and insolvency in recent years, helping it land major advisory roles such as the UK administration of MF Global and advising the Barclay brothers on their long-running dispute with property developer Patrick McKillen over the control of three iconic London hotels.Weil’s London arm demonstrated its corporate heft outside private equity with Marco Compagnoni leading a team on the sale of a multi-billion dollar stake in the Russian oil joint venture TNK-BP to Rosneft at the back end of 2012. The hope must be that Weil’s hard-won reputation in the Square Mile won’t be damaged by recent events.
As to its home turf – at certain elevated levels of the US market, particularly in Wall Street, memories are very, very long regarding axing associates. Mid-market cuts are one thing – for the $2m-plus PEP crowd, it’s still not the done thing. If Weil is ultimately proven to have called the market right, it will deserve all the credit it’s already got. But if the New Normal pitch turns out to be Weil’s narrative rather than a wider story of BigLaw 2013, those initial plaudits will return to haunt it.
david.stevenson@legalease.co.uk and alex.novarese@legalease.co.uk