When The Lawyer published its ranking of the top 50 US firms in 2007 by revenue, we hinted that the following year’s figures were unlikely to be as remarkable as the record-breaking results that had just been posted.

Top US firms must learn to roll with the punches in the fight to last the distanceLast March, when The Lawyer published its ranking of the top 50 US firms in 2007 by revenue (24 March 2008), we hinted that the following year’s figures were unlikely to be as remarkable as the record-breaking results that had just been posted.

As we noted: “The mood among lawyers in New York… suggests that in 12 months’ time there will be some US law firms posting significantly poorer numbers than they managed last year.”

Frankly, it did not require much of a crystal ball. The article was published on 24 March, exactly one week after the US’s fifth-largest investment bank Bear Stearns had been snapped up for just $236m by JPMorgan Chase.

If that was bad, worse was to come. By popular consensus, the day everything changed was 15 September, when Lehman Brothers filed for bankruptcy. Since then any predictions have been about as valuable as a real estate-backed securitisation. But in hindsight, the unprecedented number of redundancies that have since flooded the US market now appear to have been inevitable.

So Baker & McKenzie’s barnstorming performance to close the gap on Skadden Arps Slate Meagher & Flom to only $10m may be cause for celebration in Chicago, but the firm has already joined the growing ranks of US players that have been forced to make headcount reductions.

“In this economic downturn we’re striving to make our firm even more client-centric, a firm that’s responsive to client cost pressures and fixated on added-value service worldwide,” a Bakers spokesman says.

Translated from management speak, that comment partly refers to the moves Bakers made in January when it was forced to make around 20 associates in its London office redundant and put the entire support staff under review (20 January). In the same month it also laid off six associates in New York.

Predictions may not be worth much these days, but inevitably the current number-one topic of conversation among the world’s top lawyers is what the future holds for their firms. What is becoming increasingly ­obvious is that this is not simply any old recession that just requires a little hunkering down. This is a fundamental change in the landscape of the financial services companies that until now were the cash cows for many of the top firms.

As Gwen Feder, a recruitment consultant with The Petersan Group in New York puts it: “There’s a significantly reduced number of clients willing to pay $1,000 an hour for a partner, or ­anything at all for first and second-year associates, in this new world”.

These seismic changes are most acutely reflected in the layoffs US firms have made this year.

“Firms are taking a good, hard look at their prospects for 2009,” states Jomati’s Tony ;Williams. ;“Staff turnover has virtually ground to a halt among the largest firms, which means the usual 15-25 per cent attrition rate is unlikely to happen this year.”

The layoffs that have plagued the US continued last week, with Dechert ­making its second round of lawyer redundancies in a month (Thelawyer. com, 25 February). The ­torrent of job cuts is clear ­evidence that an increasing number of US firms are not merely cutting costs, but are taking advantage of the economic downturn to reshape their business in a more aggressive manner than ever before.

“Firms are raising the bar on who they consider are the people they want; and not by one notch, but by two to three,” adds Williams. “They’re asking, ‘who do we want on board for when things pick up and to get us to that point?’”

Firms at all levels of the market are also increasingly looking at alternative charging structures, while keeping an even sharper focus in the short term on cutting costs. As Orrick chairman Ralph Baxter puts it in our lead story today: “In five years’ time the world’s leading law firms will be those that are best oriented to adapt to that change.”

Several of the US’s elite firms, including Cravath Swaine & Moore (outside the top 30 on revenue, but which saw a 24 per cent drop in average profit), saw their average profits tumble last year when the locomotive of their premium-rate practices – top-end, highly leveraged M&A – disappeared.

Other firms’ figures – including Orrick, where average profit per equity partner was down 20.8 per cent – saw their businesses hurt by the collapse in structured finance and securitisation.

“Is the model broken?” asks Bruce MacEwen of Adam Smith, Esq. “If it is, how do Wall St law firms work if there’s no longer a Wall St as we know it? That’s the fundamental question for firms like ­Cravath and its peers.”

Right now, the answer is anybody’s guess.

For more on this topic, see today’s cover story and the leader.