AFTER months of anxious planning, it was time for Hugh Verrier to finally press send.
In his two years as chairman of White & Case, the venerable Wall Street law firm, Mr. Verrier had already laid off 70 young lawyers and shuttered offices in Bangkok, Dresden and Milan. He had watched top partners flee to competitors and suffered a depressive 2008 holiday party at Cipriani’s, which had half the budget of the prior year’s $500,000 event — a Neroesque fete at the United Nations with fireworks and a band.
Now Mr. Verrier, who had worked exclusively at the century-old firm since leaving Harvard Law School in 1982, sat in his office high above 44th Street and Avenue of the Americas, considering the e-mail message he was about to send. It announced that 200 more lawyers would lose their jobs, nearly 1 in 10 at the firm over all — and not just young associates with everything in front of them, but some million-dollar-a-year ones like himself, the ones with twin mortgages, kids in private school and no Plan B.
“I greatly regret having to take these actions,” Mr. Verrier wrote, making a nod to the “deterioration of the global economy” and the need to slash expenses in recessionary times. Then he dropped the bomb: “a reduction in the number of our partners commensurate with current and anticipated needs.”
The reaction was swift and frantic. Partners who were staying scurried to protect their favorite workers; résumés were burnished and beamed out to recruiters.
As the victims were informed at private meetings with supervisors, a group of young lawyers downed tequila at a nearby tavern and morbidly scratched a “whack list” on a legal pad with guesses as to who was getting the ax.
Within nine hours of that March 9 message, 231 comments — several, it appeared, from within the firm itself — were posted on the popular lawyers’ blog abovethelaw.com. They ranged from the apocalyptic (“Armageddon!!!”) to the ghoulish (“Is anyone handing out towels for this bloodbath?”), to the disturbed (“AHHHHH!”).
Months later, the corridors of White & Case are quiet, the happy buzz of business having gradually been replaced by a melancholy pall of diminished billable hours. Many office doors are shut — not because of meetings, but, as one associate put it, so that “the man with the ax” cannot find the occupants. Type-A partners, once glued to their BlackBerrys, suddenly have time for their spouses and their children; ladder-climbing junior lawyers linger over lunch.
“People are shellshocked,” said one top partner at the firm who, like many of its current and former lawyers, spoke on condition of anonymity for fear of retribution. “If they survived the first two rounds, they’re happy to have a job, but are still very nervous. And if their phones don’t ring, if their work doesn’t come back with a vengeance, they fear they aren’t long for this world.”
As the apocalypse on Wall Street ripples out into the larger economy, a thick red tide is lapping at the once-impregnable foundations of New York’s corporate law firms, threatening to turn the industry — and with it, some iconic city characters — into an endangered species.
A few top firms, like Thatcher, Proffitt & Wood, established before the Civil War broke out, have already gone under in the flood; the carnage of layoffs has touched even sterling names like Proskauer Rose, Dewey & LeBoeuf and Clifford Chance.
In the first quarter of 2009, demand for legal services in New York decreased by nearly 10 percent over 2008, according to the Hildebrandt International Peer Monitor Index. At least 10,000 employees at major firms across the country have lost their jobs so far this year, according to the macabre but wildly popular “Layoff Tracker” run by another blog, lawshucks.com.
At the root of the law-firm crisis, legal experts say, is the credit crisis, which has pulverized the need for traditional practice areas like structured finance, mergers and acquisitions and private-equity transactions — the very things that have always kept a high gleam of polish on the city’s whitest shoes. The downward trend has been unrelenting: fewer Wall Street deals mean fewer Wall Street lawyers.
While the legal industry is hardly battling the existential threat that is facing, say, the newspaper trade, Big Law — especially in competitive New York — is facing a potential paradigm shift as fundamental as the one that has hit investment banks and the auto industry. Big, as a business model (let alone as an expression of the national mood), seems bound for obsolescence.
The Hildebrandt index found, for example, that at the nation’s 20 top-grossing law firms — 12 of which are in New York — average profit per partner and revenue per lawyer both dropped in the first quarter of 2009, for the first time since 1991.
At White & Case, the average profit per partner last year was $1.6 million, down from $1.7 million the previous year, according to AmLawDaily, the Web site of The American Lawyer.
The firm, which is sixth on the Hildebrandt list, reported a 7.7 percent increase in profits last year, to $1.4 billion, but has been among the most aggressive in cutting staff: nearly 600 people, 279 of them lawyers — including seven of 73 partners in London — have been fired so far in what Mr. Verrier described in a rare interview as a “gut-wrenching” process.
“It’s a very painful thing to have to go through,” said Mr. Verrier, a husky man in pinstripes. “It’s hurtful to read the criticisms directed at the firm — and at the partners — when this is a great institution that, under economic pressure, had to adjust.”
Jerry Kowalski, a legal consultant who tracks the New York market, said that “the mood at White & Case — and at probably 15 or 20 more firms in New York — is kind of like sitting at a deathbed and watching a close relative wither away. It’s like you’re right there in the I.C.U. with the patient and you know that the condition is terminal.”
FOUNDED in 1901 by Justin D. White, a Cornell graduate who married a banking heiress, and George B. Case, who is said to have invented the squeeze play on the baseball field at Yale, White & Case is — or was — the quintessential gentleman’s firm. It was built not only on the grubstake — a possibly apocryphal $500 — of its founders, but also on their close relationship with Henry P. Davison, a plutocrat philanthropist who helped create the Federal Reserve.
Its first coup was winning the legal work of Bankers Trust Company in 1903. The growing firm managed French and British procurements in the United States during World War I. Over the years, its clients have included establishment pillars like August Belmont Jr., U.S. Steel and General Electric.
Rudolph W. Giuliani worked there briefly in the 1980s (and was criticized for the firm’s work on behalf of Gen. Manuel Noriega of Panama). These days, headlines mention Thomas Lauria, head of the firm’s financial restructuring group, who represents opponents of the Chrysler bankruptcy in federal court.
From 1980 to 2000, White & Case was led by James Hurlock, a Rhodes scholar and visionary autocrat who tripled its staff of lawyers and expanded into markets as diverse as Helsinki and Hanoi. Mr. Hurlock was succeeded by Duane Wall, who turned the focus back toward New York. When Mr. Verrier took over in 2007, foreign offices, like London, quickly questioned his ascent, partly over his early decision to bring in the consulting firm McKinsey & Company — which suggested that the firm was overstaffed.
Mr. Verrier denied that McKinsey had convinced him of the need for making layoffs and suggested there was still “a vital role for the global law firm,” even while acknowledging an increased tendency among clients to seek out regional firms for certain work.
“Is there a paradigm shift?” he asked, seated in a 40th-floor conference room with a privileged view of Times Square. “I don’t think anyone has a monopoly on what the future’s going to bring.”
Which may, in fact, be the point. Much like Merrill Lynch or General Motors, firms like White & Case, which still has more than 2,000 lawyers in 34 offices in 23 countries around the globe, are teetering on the beanstalk — at a moment when their pool of associates is large as case volume dips and clients demand lower fees.
“I hear the stories all the time,” Mr. Kowalski, the consultant, said. “Real estate lawyers are honing their skills playing solitaire. Younger lawyers are gossiping all day and scaring the crap out of one another. The head of the corporate department of a major firm just told me that he hasn’t billed a minute’s worth of work in the last two weeks,” he added.
Peter Zeughauser, a legal strategist in California, said that “for a quarter of a century, there has been this enormous boom in business, mostly due to expanding capital markets, and the top-tier firms kept hiring as if the boom would never end. Most of the top firms are completely out of balance, with lots of young associates underfoot — and associate pay is the biggest component of law firm overhead. And on Sept. 15, when Lehman Brothers went under, everything hit a wall.”
That wall was especially hard because — remarkably like such ventures as the Mafia or the ice-cream vendor — many large firms operate on a cash-in-hand basis, with insufficient reserves to weather a slump.
With Wall Street in a meltdown, Big Law suddenly found it not just indecorous but impossible to pay young lawyers six months out of law school $160,000 a year to stare at their hands. (Indeed, after offering jobs to dozens of third-year law students last fall, White & Case told 60 percent of them they would have to wait a year to start.)
Mr. Verrier said he saw the storm approaching shortly after he took control in 2007, and considered three options, in consultation with a group of core partners: Do nothing, which risked the firm’s survival; couch layoffs as decisions based on poor performance; or own up to the crisis and bid large numbers of lawyers a harsh but needed goodbye.
His choice to confront the situation directly, while lauded by many on the staff, carried the risk of seeming weak, of becoming the poster child for the industry’s demise. But he saw it as opening a window for White & Case to eventually reposition itself.
“Sometimes it was people who had recently joined the firm, but sometimes it was much-more-senior people at what seemed to be a natural break in their careers,” Mr. Verrier said of those who were let go.
“There were tough judgment calls,” he admitted, adding that he tried as best he could to preserve the firm’s culture and that the “how” of the dismissals, at least in his mind, was as important as the “why.”
THE gentleman’s profession of the law is becoming a vestige of the past, removed enough from reality to be remembered, like phone booths or fedoras.
Philip K. Howard, a senior partner at Covington & Burling, another multinational firm, may be the closest thing to a gentleman lawyer that one is likely to find these days. He is courtly, white-haired, civic-minded and blessed with an aristocratic pair of arching eyebrows. While he declined to speak directly about White & Case (“I’m not really interested in the business of the law”), he touched on the firm’s current troubles by suggesting that as the bottom line increases in importance, the traditional role of the lawyer as a trusted counselor slips away.
“To the extent that lawyers are simply churning out the same problems one after the other and are treated as factors of production to be laid off or not because of market forces or marginal declines in profitability,” he said, “the emotional and professional commitment that goes along with being an adviser and a solver of problems begins to diminish.”
This bottom-line focus was in evidence at a recent meeting of the New York State Bar Association’s beefed-up Committee for Lawyers in Transition. It was a grim affair: a few dozen laid-off lawyers trading business cards and eating the catered chicken at a Midtown firm while another few hundred chimed in virtually, via the Internet. The talk was of “regrettable losses,” “reduced-hour arrangements” and contract assignments in which one might contribute in “a nonbillable” (read “no pay”) way.
The classic New York law firm is a highly developed ecosystem populated by certain native species: there is the brash, aggressive partner leveraged by lifestyle and, rising from below, like a creature out of Darwin, the ambitious associate who pulls all-nighters doing scut work in hopes of one day taking the chair.
But the natural order of this world has been set on end by the economic crisis and the possible disappearance of fixtures like the pyramid system (under which associates are thrown en masse at certain cases, fattening the fees), and the billable hour itself (increasingly replaced by flat rates or retainers in a client’s market). The tectonic plates have begun to shift in a nauseating manner, bringing fear, ambiguity and psychological scars.
“You used to feel the intensity in the office,” said a longtime partner at a big New York litigation firm. “When people walked to the bathroom, they would actually scurry. Now it’s more of a stroll.
“For the first time in their lives, people feel sort of useless. All of a sudden, you can go to lunch for two and a half hours and really not be missed. It’s a blow to the ego. You’re talking about people who have never really failed.”
At White & Case, the tensions have become so fierce that some people now fear staying home even if they are sick. Market forces have replaced “the social contract,” a top partner there said: camaraderie is “not terribly strong,” because “people are very scared.”
“When you finally make the partnership, you can walk into a room and certain assumptions travel with you: This is someone who knows what they are doing, who has intelligence and authority,” the partner said. “While that’s still basically the case, it was a much more collegial place when I first got to the firm. Now it’s colder.
“The loyalty of the institution to its people, and vice versa, isn’t really there anymore — it’s a different animal from what a lot of us were used to. It’s much more of a business now and less of a true partnership. The problem is we’re supposed to all be in this together. But at some point, you stop and think: ‘Well, maybe we’re not.’ ”