Morrison & Foerster chairman Keith Wetmore does not subscribe to the increasingly prevalent view that the current economic downturn will leave the world’s top law firms irrevocably changed.
“I think it’s wrong to say things have fundamentally changed,” argues Wetmore. “The world economy will grow again and when it does clients will need lawyers to advise on that growth. They’ll still get into pissing matches with each other and will still need lawyers to help them fight those battles.”
It is an upbeat view, but do not mistake this sunny outlook as delusional. Wetmore is all too familiar with the structural changes that he would be the first to admit are fundamental
“We’ve never had across-the- board associate headcount reductions before in our history,” Wetmore admits, referring to the mammoth redundancy round MoFo went through in January, which saw 53 lawyers laid off along with 148 support staff. “It was a cultural event for us.”
And not a happy one. MoFo largely built its reputation over the past two decades as being among the most forward-thinking and inclusive places to work, something that sits uncomfortably with the widespread layoffs.
Although Wetmore believes the basic law firm model will continue largely unchanged, he does acknowledge that events such as his firm’s layoffs, and those at many others that have taken place since the downturn began, highlight some of the short-term tweaks that are taking place.
“The entire law firm model is built on a number of assumptions,” argues Wetmore. “One of which is that there will be 20 to 23 per cent attrition of associates year-in, year-out. Without that attrition, the entire system collapses. There is only so much work. If you still have 100 associates coming in each year, you can’t grow fast enough in this environment. So yes, demand has dropped but attrition is necessary and it has come to a halt.”
Wetmore has a particularly visual, not to say visceral, way of describing what is currently happening in the legal market.
“This was a train wreck of incoming associate classes and no noticeable attrition added to slackened demand,” he says.
For MoFo, this slump in demand is primarily in capital markets and corporate transactions generally. Some of it is also regional.
“China has slowed in transactional work,” says Wetmore, “but in the US litigation is very busy, particularly IP litigation, which continues to be the sword and shield of a client’s strategic goals. Then there’s securities class actions, white-collar crime and internal investigations. We’ve also been growing our bankruptcy practice for the past five years.”
In addition, MoFo launched a litigation team in London last year when it hired partners Jonathan Wheeler, Alan Owens and Kevin Roberts from Irwin Mitchell. The team is primarily handling insolvency and asset-tracing work.
Despite this, there is a growing impression among a number of commentators in the market that MoFo has been left in the wake of some of its more aggressive rivals – most obviously Orrick Herrington & Sutcliffe – in terms of its international expansion.
Indeed, when The Lawyer published the firm’s 2008 financial results earlier this year (13 January), an anonymous poster quipped: “MoFo has basically admitted defeat and given up on expanding the empire.”
What does Wetmore say to that?
“I’d say ‘no’,” he counters, somewhat predictably. “Defeat usually requires a retreat somewhere and we haven’t retreated from anywhere. We had net growth in London last year and in Japan. Yes, China is likely to be flat. But we’re also continuing to look to expand. It’s unlikely there will be anything this year but we’re certainly interested in Continental Europe beyond Brussels [MoFo’s only current office in Continental Europe]. I’m just fine with the fact that we’re not digesting a large German merger right now.”
But while there are pockets of activity at MoFo, the extent of the firm’s layoffs is evidence of its exposure to the downturn. Consequently, Wetmore’s focus over the next few months will be just as much on generating new business as slashing costs.
“We’re trying to find a way to use the downturn to get more embedded in our clients,” Wetmore says. “They’re asking more of us, it seems only fair that the quid pro quo is that we ask more from them. I think there may be a swing back to more retainer relationships and a push for longer-term investment in clients and by clients.”
In the meantime, Wetmore and his management team will continue to watch the costs closely.
“The reality is that 85 per cent of law firm expenses are salaries and rent,” says Wetmore. “Currently, we have some properties that are coming up for renegotiation. I used to worry about having too many properties coming up for renegotiation at the same time. Not now.”