The Dead Company Club

“Only when the tide goes out do you discover who’s been swimming naked.”                                       — Warren Buffett

From heyday to…

Would you like to take home $1.3 million? That’s the average profits-per-partner in the top 100 law firms as of 2008.  Law firms have laughed all the way to the bank for years, enjoying 160% growth in the last 10 years and obese paydays. Even fresh-faced graduates couldn’t stop grinning with their $175,000 starting salaries.

…no payday at Big Law

But the last year has been a disaster for law firms. Heller Ehrman was in the top 50 just a year ago. Now it’s dissolved. 75% of the top 50 firms have had layoffs. The rest of them have cut salaries or delayed start dates for new attorneys, sort of a pre-employment layoff. Some firms are even paying new hires to not work. Does anyone follow that logic?

Rotting from within

Pop culture has compared law firms to rodent dens, like dumpsters but better organized. Given that lawyers will bare their fangs and litigate almost anything — suing McDonald’s because their hot coffee is … hot? — how can their businesses possibly be dying? Most of the dead were well established firms, appearing to be successful. Like other private businesses, you can’t see the rot within until it topples.

It’s Not the Economy

The economy is only partly to blame. There are three main reasons behind recent failures:

• Leadership doesn’t lead
• Someone in a position of authority goes over to the dark side
• Mergers – intended to build strength in numbers – fail

The crappy economy only highlights shortcomings, it doesn’t cause them. And because of that, the problems aren’t going to go away when the economy turns around.

So Sue Me

A few law firms have closed quietly. But others have had ugly implosions where former employees find themselves in the unsecured creditors’ line, hoping to get at least part of a paycheck. Laid-off attorneys and staff are suing their former employers.  There’s a dangerous mix of well-tuned argumentative aggression and animosity brewing.

Meanwhile, there are a lot of very smart, well-trained professionals who are looking for jobs in a troubled, shrinking industry. The tide is going out. Let’s see who’s still wearing a suit.

Are you one of the frustrated laid-off attorneys or support staff? What have your last few months been like?

After consulting to law firms for 15 years, Laurie Phillips took a break for a few years and then all hell broke loose. Read more about her work at Sundance Research.

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