With 2001 in mind, law firms alter layoff strategy

Many firms are choosing a more transparent process when trimming

Clifford Chance's (CC’s) latest round of layoffs unfolded according to a carefully choreographed sequence of events - almost.

Law firm leaders spent a month developing a plan for how to tell 20 associates on 14 October that they were being let go and how to break the bad news to the rest of the firm and the media.

First, the associates were told in person by a supervisor that they were laid off. The firm then held group meetings where lawyers could ask questions about the downsizing. Finally, CC had a prepared statement ready to send out at 3pm, after the group meetings were slated to wrap up.

But information is difficult to control in the internet age, and rumours of the layoffs hit the popular legal gossip blog Above the Law shortly after 2pm.

A half-hour ahead of schedule, CC rushed out a brief statement that attributed the layoffs to "sluggishness in litigation matters".

Lessons from 2001

CC is hardly the only firm to find itself in the unenviable position of laying off lawyers - at least three other firms have announced significant cuts in October alone, and recruitment specialists are predicting more to come.

Firms in downsizing mode must decide if and how to go public with layoff news, which can make a firm appear weak and unstable.

For CC, it was important to get out in front of the layoff story, said John Christian, chairman of the firm's personnel committee.

"In today's world, we knew it would become public right in the beginning," he said. "We thought it would be best to address the situation early and shoot down the rumours, which so often turn out to be exaggerated."

Cadwalader Wickersham & Taft took a similar tack when it cut 96 lawyers in July. Chairman Chris White immediately explained to the press that the cuts were a direct result of a slowdown in the firm's real estate and mortgage-backed securities work and not performance-related.

The latest wave of layoffs has shown that firms are, generally, more willing to disclose bad news than in the past. It is not uncommon in the current economic climate for firms to quickly confirm the size of their layoffs and offer reasons for their downsizing.

The movement toward greater transparency began in 2001, when the dotcom bust and the economic slowdown that followed 9/11 led a large number of firms to trim their ranks through mass layoffs, said legal consultant Peter Zeughauser.

"Things have definitely changed," he said. "Ever since the [Cooley Godward Kronish] layoffs in the dotcom bust, firms have been more candid about the reason there were laying people off. That was a real turning point."

Prior to 2001, it was common for firms to attribute layoffs to performance, a move that helped to protect the stable image of the firm but, ultimately, hurt the laid-off employees, Zeughauser said.

Some firms would not say anything at all about layoffs, said Altman Weil principal Ward Bower.

But Cooley Godward became the first in 2001 to lay off a sizable number of associates, and it was forthright about its problems. Other firms followed Cooley's lead.

Assume a leak

As CC learned, however, layoff news is bound to leak out, regardless.

"Firms know they're not going to be able to execute layoffs under the radar. The rumour mill is fierce," said Karen Schwartzman, president of Polaris Public Relations in Boston.

Schwartzman, who advised Boston-based Testa Hurwitz & Thibeault on its 2005 dissolution, advises firms to anticipate that bad news will get out. When writing a memo explaining decisions to employees, firm leaders should assume the document will be leaked. Thus, the memo should contain the information the firm wants to put out to the media and clients, Schwartzman said.

Law firms currently laying people off have a few advantages from a public relations standpoint. First, the slowing economy has hit a broad range of industries, and the uncertain financial climate makes it easy for people to understand why layoffs are necessary, said CC’s Christian. "This is an unprecedented time," he said.

Secondly, downsizing law firms are not alone in the spotlight since a growing number are resorting to layoffs.

"If you have the luxury of being in company when you are announcing bad news, it's always better than being alone," Schwartzman said.

Just one day after CC’s layoff announcement, Katten Muchin Rosenman laid off 21 associates and Sonnenschein Nath & Rosenthal laid off 15 associates.

"No one wants to deliver the bad news, and no one wants to hear the bad news," Christian said. "But people will respect you for being straight with them."

This article was first posted on the website of The National Law Journal, a US sister title of Legal Week.