I read with interest an article in today's NLJ.com, "How Much Do Law Firm Layoffs Save? A Lot." The core of this argument seems contained in one sentence: "Law firm leaders and industry consultants say a firm cuts costs by an average of $250,000 for each attorney let go. For each legal assistant or other staffer laid off, a law firm saves about $100,000."
Maybe, maybe not.
According to an American Lawyer magazine article, "the average Am Law 100 firm has 778 lawyers, 183 equity partners, gross revenue of $645 million, revenue per lawyer of about $828,000 and profits per partner of $1.315 million."
So, using these figures, simple math suggests that in the average AmLaw 100 firm, the average equity partner (making more than $1 million a year) personally saves $546.45 for each staff person he puts out on the street and a whopping $1366.12 for each attorney colleague who suffers a similar fate.
Doubtless, at least in part, firms are using the downturn as an opportunity to pare the dead weight that most firms accumulated during boom times and didn't have the stomach to deal with then. That's certainly prudent.
However, to the degree that these layoffs are positioned as a necessary short-term cost saving response to the downturn, they're disingenuous because they don't actually save all that much money. As the NLJ article continues, “severance packages that firms are giving to pink-slipped lawyers vary, but [one] firm chairman said that, in general, every $10 million saved in compensation is offset by $7 million paid in severance.”
So, reducing the previously calculated savings by the 70% severance cost brings us to putting colleagues and staff out on the street for a net saving per equity partner of $409.86 and $163.94, respectively. So, at least on a per-equity-partner basis, it seems we're laying people off for the cost of an iPhone.
Intended or not, the current debate also makes law firms sound like helpless victims of revenue decline, trapped in their fate, unable to do anything about it. Please.
There is a far more effective solution available, but it would require the partners to take personal ownership of the firm's future and expend real effort: Engage in serious, focused sales activity and generate more revenue.
In every downturn there is opportunity. It's not easy, and can't be discovered or captured using the passive, wait-for-it-to-come-over-the-transom mentality that takes deep root during boom times such as characterized the past ten years. But it can't possibly be as difficult as looking people in the eye and telling them that they no longer have a job with the firm for whom they've sacrificed nights, weekends and family time for so long.
