The effect of the ongoing credit crunch has reached even the most elite of New York’s blue-blooders and the firm’s decision to introduce a mid-year appraisal underscores the fact that, in a downturn, mediocre performances will not be tolerated.
Unlike Cadwalader, Simpson Thacher’s far broader practice has, to an extent, shielded it from the effects of the downturn and its most profitable practice did not fall off a cliff over night. But it has been an open secret in New York for weeks, if not months, that there is likely to be some fallout from the firm’s heavy workload from the now disappeared highly leveraged private equity deals. Deals are still being done, but of a size and frequency that demand only a fraction of the staffing compared with last year.
Stellar though many of the firm’s other practices are, there is simply not enough work to take up the slack. Despite some outstanding recent results in the disputes group – such as the 1 August $1bn (£510m) arbitration win by partner Barry Ostrager for Korean client Hanwha Group against the Korean Deposit Insurance Company – the widely anticipated wave of litigation has yet to crest on US shores.
The result? Simpson Thacher is anticipating its 2008 financial results will be significantly below those seen last year, when revenue hit $966m (£483m) and partners took home around $2.87m (£1.43m). Sources suggest this year’s figures will look a lot more like the firm’s results in 2006. Hardly a calamity, but requires action.
The introduction of an additional performance review raises other questions. If Simpson Thacher, as it appears, is adamant that the lawyer reductions it is making are all performance-based, it is an admission that during the boom time it lowered its recruiting standards in order to staff deals. (Sorry Simpson Thacher, but you can’t have it both ways.)
At any rate, the associates the firm now believes are below par have been given the “opportunity” to find jobs elsewhere.
They may not be terribly grateful.