Paycuts and culling as Valley firms panic

VLG axes 20 in strategy shift; Gunderson Dettmer first years lose $20,000

Two of Silicon Valley’s highest profile firms have made a dramatic U-turn on strategy to cope with the economic downturn.
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, the firm which began last year’s salary war when it hiked pay by 30 per cent across the board, has now cut wages for all lawyers, with first year-qualifieds losing $20,000 (£14,300).
And Venture Law Group (VLG), the firm that would work only with start-up companies and then refer them to Orrick Herrington & Sutcliffe when they grew, has laid off more than 20 staff and changed its strategy.
VLG axed nine paralegals, five support staff and as many as 10 lawyers for performance-related reasons. Six more lawyers were redeployed into non fee-earning roles, taking pay cuts and working on improving the firm’s internet services. The boutique firm has just 100 lawyers in total.
The firm has also decided to stop dumping clients when they grow, and to carry on working for larger companies. And it has stopped referring corporate work to Orrick.
Gunderson Dettmer has abandoned guaranteed bonuses for all lawyers, which it implemented last year. Bonuses, which began at $20,000 (£14,300) for first years, are no longer guaranteed and will be decided on performance.
VLG partner Don Keller said: “We always do performance reviews twice a year so the performance matters were consistent with that, but I think we are being more aggressive this year because of economic conditions.
“There’s been a fall in the startup work and a reduction in attrition rates so we find ourselves with more lawyers than we need. In 1998 and 1999 we had around 20 to 25 people leave voluntarily, but I think we expect this year’s voluntary attrition to be somewhere in the region of five or six.”
The rush of initial public offering work which characterised the Valley at the end of the 1990s tailed off in April 2000, and a general economic downturn hit in December.
Keller said: “I don’t think any of us have ever seen this type of slowdown before – the events are very significant, a once in a century-type event.”
He adds: “We are being more aggressive and going after larger company work right now which we wouldn’t otherwise. I think we will continue to have more of a balance in our practice over the next few years so that we are not 100 per cent on the early-stage companies.
“The amount of corporate work that’s going to Orrick has slowed down dramatically but we are still doing lots of projects with them on non-corporate matters.”
Corporate boutique Gunderson Dettmer was the first firm to hike salaries from $96,000 (£68,775) to $125,000 (£89,500) for first year-qualifieds plus a $20,000 (£14,300) guaranteed bonus. Valley competitors and then New York and London firms followed suit. Most US rivals raised base pay to the same level but introduced only discretionary bonuses.
Gunderson Dettmer managing partner Scott Dettmer said: “We wanted to have some flexibility in the bonuses we would be granting at the end of the year. We are certainly trying to be prudent because of the economic environment.”