Law Firms Strategize Hiring and Firing to Safeguard Profits During Uncertain Times

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US law firms are adopting a blend of aggressive job cuts and intensive recruiting to improve profitability. Firms are making strategic hires to meet demand while cutting staff who are not producing revenue, said Mary Rosenfeld D’Eramo, VP of operations at legal recruitment firm Mestel & Co. A Wells Fargo Legal Specialty Group report shows that profits per equity partner fell nearly 4% last year, prompting firms to clean up their workforces by counseling underperformers out while aggressively recruiting high performers. Law firm management consultant Kent Zimmermann said firms are using the macroeconomic environment to upgrade the quality and performance of their talent, which protects profits while redeploying funds into areas of strategic growth, including technology, professional development, and client development needs.

Firms are also seeking mergers to gain grander scale and market-leading benefits. Some deals announced this year include Orrick, Herrington & Sutcliffe’s merger with Buckley, Morrison & Foerster’s acquisition of litigation boutique Durie Tangri, and Holland & Knight’s combination with Waller Lansden Dortch & Davis. Shearman & Sterling is reportedly in early-stage merger talks with Hogan Lovells, and Stroock & Stroock & Lavan is searching for a combination partner.

Zimmermann said firms understand that more prominent and more profitable firms have an advantage in competing for talent, which is why consolidation is becoming more attractive.

  

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The uncertain economic climate of 2023 requires a softer touch than the deep cuts made during the Great Recession, as firms seek to protect profits while being thoughtful about shedding talent that is not aligned with critical goals. While the job market remains strong, a steady string of interest-rate hikes threatens to push the US into a recession. The law operations were forced to absorb the costs of a 4.5% increase in headcount as they hired aggressively to cope with a 2021 surge in work. Still, firm leaders have had time to regroup since then, said Marcie Borgal Shunk, president, and founder of the consulting firm The Tilt Institute. They are being more thoughtful than reactive about shedding talent not aligned with critical goals while redeploying funds into strategic growth areas to protect profits.

Despite the steady drumbeat of layoffs, firms are also hiring. According to data from Leopard Solutions, the nation’s top 200 law firms brought on 372 lateral partner hires so far in 2023, just 1.6% off last year’s pace. Some firms are using the macroeconomic environment as cover to upgrade the quality and performance of their talent, said Zimmermann, which means cleaning up the workforce by counseling out underperformers while aggressively recruiting higher-performing groups of people.

Michigan-founded boutique firm Clark Hill acquired Philadelphia’s Conrad O’Brien and 18 lawyers this year, less than a month after picking up the four-lawyer real estate law firm Larsson & Scheuritzel. Rising labor and technology costs, mounting cybersecurity compliance requirements, and succession planning at smaller firms whose founders are looking to retire are driving expenses, said Clark Hill’s CEO, John Hensien. The acquisitions could usher in long-anticipated consolidation in the legal industry, with big law behemoths getting even more significant and the rest of the market splintered. Hensien said more of the smaller firms would specialize as high-end boutiques, especially in niche industries, and that the middle is likely to get thinner.

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Law Firms Mix Hiring, Firing to Protect Profits Amid Uncertainty