Stroock pays incoming lawyers to NEVER show up

it is better than just rescinding with nothing -- certainly not a new LOW --- lots of people have no jobs...

manhattanfox, you're preaching to a populist here. i meant a new low for the very large law firms. the implications are fairly large. whole classes of previously upwardly mobile grads are being deferred for a year, or are being offered money to go away and think about the fact that they just spent lord knows what on three years of higher education. if mom and dad paid, that's one thing. student loans, that's another. and they have to decide whether or not to take the money, or to show up in 2011 and be fired, or to be told not to show up at all and not have the money.

I know the young are not the greatest priority, but they do (or have, at least) paid taxes and consumed (rather alot, particularly beer). UBS announced today that it's first years can just sit for now as well. I'm just pointing out that this will, at every level, affect the unemployment rate going forward, as well as consumption, whether it be the future lawyer or the future house painter.

and the student loan default rate is going to be massive.

has anything like this happened in the last 20 years (or more)?

no. i don't think it even happened during the depression, but the law was a much smaller club back then. many of our current white-shoe law firms made their early rise and fortunes from the depression.

my husband was talking to an 80-year-old partner at one of the top 5 firms the other day. He's been at that firm his entire career. Has never seen anything close.

not to pile on...but, assuming no changes, they may skip a couple of years of recruiting? i assume that this will create shudders throughout the entire graduating class.

i'm no fan of attorneys generally (despite the hubby!!), but the 1Ls are crapping in their seats. the 2ls who have summer positions are afraid but hopeful that things might turn around. the 2ls without positions have decided to use it as an excuse to do whatever they will do. and to complete the circle, the 3ls with any humility at all are crapping in their seats. others still have a remarkable amount of attitude.

To my mind, this points to a big problem of why the sales of studio and one bedroom apartments will have lots of problems for the next couple years. Its people like the hoards of young associates and young bankers who are the bread and butter for these types of places and they are being totally wiped out.

yes fmw, and to move up you must first sell your apartment. Julia, your day is coming. but it will take awhile.

"student loan default rate is going to be massive."

Except that you can't default on student loans. Even private ones. The banks can garnish your wages; you can't even get out from under them in bankruptcy. For this class the only possibilities are going to be public service and pray for some of those loans to be forgiven, or going to live in another country on a permanent basis.

evnyc, anyone can turn a good debt into a bad one. it will affect their credit rating, which will in turn affect their ability to do anything, but technically you can not pay and suffer the consequences. student loan defaults are already climbing, and the ugly truth that nobody is talking about is that they are sometimes student loans taken out by parents for their children's education, INCLUDING private school tuition in NYC.

yes it is horrifically ugly, and it is happening. i haven't followed the technicalities of default provisions for student loans. can you find a link to show people what you're talking about? it's horrible.

Well actually this sort of thing happened to plenty of Wall street and consulting incoming MBAs over the last decade during downturns, so its not completely a new idea.

really...when and which firms?

Ummm, I don't mean to sound like an asshole, but I don't think we should drawing any conclusions based on Stroock!

that's cool ... why not?

"Except that you can't default on mortgage loans. Even private ones. The banks can foreclose on the property; you can't even get out from under them in bankruptcy."

Well, if the Vault rankings are a meaningful guide as to whom is considered a market leader, Stroock is currently ranked 83rd. It's also about the 90th biggest US law firm. It's sort of like looking to Cowen & Company as a guide to what's happening in I-banking.

so...you figure that since vault (a company that is well known for ranking law firms) says this company is number 83, this doesn't mean anything? 83 out of how many? i guess if there was some specific situation other than the famous vault ranking that meant that this firm was somehow different, i would be interested to know. how many years has this firm been in business? have they done this before?

hey and while we're at it: Jason tell us about how this has happened "to plenty of Wall street and consulting incoming MBAs over the last decade during downturns."

Yes -- in 2001 -- many of the banks paid for newbies to sit it out...

which banks for how long and what was the deal?

no, actually there were only three or so top firms (other than those that went under over the years) that engaged in any sort of meaningful cuts. Sherman, Chadbourne, and Cahill.

mytwocents, the legal world is fairly small. the 90th firm isn't nearly as far from the first in terms as size as in banking.

manhattanfox, yes, because of the tech collapse the business world rid itself of some people, who then found themselves generally employed due to the next bubble.

to anyone who has any experience with the law, this is very unusual, on a scale of many magnitudes.

Jason may be privy to information to which the rest of us don't have access, but as someone who has been in legal education for more than a quarter century from where I sit THIS IS HUGE. (BTW, I'm also hearing about law firm offers rescinding offers outright.) The worst I can remember from previous downturns is graduating JD students who had offers from 5 law firms whining because they were being shut out of the investment bank job market by their MBA peers. Believe me, what we are witnessing in the private law firm world is unprecedented.

cherrywood, my husband is a managing partner. this is huge.

More bad news. I know it's reality & I want to hear the truth, but, it gets me down.

Your memories are dreadfully short, people. Either that or your understanding of past law firm behavior in recessions is wanting. In 1990, firms invented the "soft offer." Until then, all summer associates at major firms were given offers. It was a point of pride for the firms and their recruiting prowess. "We're so proud of whom we recruit as summer associates that they all get permanent offers because they are truly exceptional." That sort of attitude.

Well, after fall 1989 recruiting season, a major downturn hit. By summer, things were economically bleak. And so, to avoid looking hurt by the downturn, firms invented "soft offers." That is, people were told, on a major scale (like 1/4 to 1/3 of some incoming classes) that they technically were getting a job offer of permanent employment and they could tell people that, but they should not come to the firm.

That kind of thing had never been widespread and was usually limited to summer associates who had been arrested during the summer or who came to work drunk or were caught stealing or doing something disgusting in the office after hours.

But some firms went further in the fall of 1990. Faced with a zillion summer associates they didn't want to come, for the first time ever, some firms outright told many they could not become permanent associates--they got no offers. Some major firms simply dissed up to 40% of incoming classes and said, "no offer."

That was unprecedented and shocking at the time. The different twist this time around is stunning, but lets not pretend firms blithely weather economic down turns without blinking or inflicted pain in the past.

And in 1990 the world didn't end. And it won't end now.

What is stupid is to gut an incoming class to near zero. When the economy picks up in a couple years, the now mid-levels will see jobs opening up around them and leave as they always do. A new class of first year associates will come, but the mid-level ranks will be decimated. Who will be there to do the brunt of the heavy lifting that 2,3,4th year associates do? No one. There will be no one trained to step up if you don't hire a new class now. You'll have a bunch of rookie idiots with 160 IQs. Some firms learned by making this mistake in 1990-92. Others will have forgotten that lesson and will pay the price in 2011 or 2012. If you have to cut, the 3rd and 4th year associates are the ranks to thin out. They are expensive to carry, there isn't enough work for them all right now, and they'll leave anyway when the economy picks up after the firms floated them for 3 years of recession.

No one has suggested that firms "blithely weather economic downturns without blinking." The essential point (the example of "soft offers" notwithstanding) that what is going on here is unprecedented holds. It may well be the case, moreover (although I have no data here) that the phenomenon you describe disproportionally affected students from (so-called) second- or third-year schools. What's occurring now is reaching deeply into the graduating classes of the ultraelite (e.g., Ivy League) law schools, whose students have historically been less vulnerable (if not immune) abrupt shifts in the legal labor market than those from less prestigious schools.

kylewest, my husband's clients have told him they don't mind paying partner rates (well they do, but not as much). They don't mind paying for 6th years, 4th years, etc. They HATE paying for first-second years. I have to wonder if we won't evolve to a system similar to the British one, an apprentice-based one where the newly minted attorney makes almost nothing. they don't need the first years in the slightest. they have so many excessive attorneys they could gut this class with no reprecussions. the biglaw model presumes that 90% of a class leaves by the 8th or 9th year, and recently partnership has become a more elusive date, a 10 year or so target. all you have to do is make that partnership date a bit flexible, and this crop of first years doesn't matter that much at all.

the MAJOR firms did not do what you are saying. and they haven't this time. yet. but this time it seems to be heading that way, and more of the top 30ish (not stroock, but sherman, etc.) are heading that way. my husband had a meeting with an industry consultant recently. he said that the big firms just seem to be waiting for someone to start the games.

cherrywood: you're speculation is not correct. In 1990, students from Ivy and "elite" schools were, like today, by and large the only ones in summer associate programs of the elite firms. There were Big Ten, Ivy and other schools represented in those who in effect were not given real offers.

This was also, despite what aboutready syas, occurring at the top 50, indeed the top 20, firms across NYC. I can name them, but the point here is not to single out any firm for bashing.

Weathering this downturn is tough and present new challenges--as does each situation that history does not yet let us contextualize. My point is the sky-is-falling posts on streeteasy lately strike me as youthful and hysterical without foundation often.

i don't believe that AR has said the sky is falling. she offers many, many data points and leaves it to the reader to draw their own conclusions. i, for one, began reading here a few months ago with a prejudice towards believing that the economy was bad but that the government seemed to be prepared to do what it would take to achieve a reasonable outcome.

the more that has happened and the more sources than i read (many helpfully provided by other posters here) the more confused and concerned I become. the latest wrinkle, the stress tests, seem absurd to me and doomed to make things worse. chrysler is bankrupt; i don't buy this happy talk about surgical bankruptcy somehow taking the sting out of the whole deal.

i am increasingly concerned about the double talk coming out of washington -- obama is a great speaker and i enthusiastically continue to support him but don't have faith in his advisers.

i don't want to think the sky is falling but other than not wanting to, i fail to see evidence (not happy talk---"rate of decline is declining") to the contrary.

What is old is new again. There is nothing new under the sun, even when it comes to NYC, a young city.

kylewest, soft offers have existed for a long time. my point is that the "real" offers that are being given are hardly real.

and in the past the recipients of soft offers often found work. here, not so much.

The lockstep, pyramid nature and up or out model of Biglaw is outdated. And the culture of Biglaw is, hmm, similarly outdated.

nyc10023, it's actually been changing, in all but the top firms, pretty rapidly. my husband's firm is lockstep, but the steps are pretty steep. most firms now have "service" partners, non-equity, who they don't pay as much but generally bill out at a similar rate to other partners. the of-counsel label is being used much more creatively, not just for the couple of elder statesmen who refuse to leave the building.

up or out is a hideous system. and the real problem is that people aren't leaving like they used to. the extremely high salaries, at the big firms particularly, have incentivized staying and putting up with the abuse for potential gain. it's horrible for morale to see highly qualified people being denied partnership year after year, but it hadn't stopped people from continuing to try.

There was a WSJ article about CSFB doing this in 2001 & 2002 (paying people to start later). Bear recisnded offers outright then. JPM laid off half its new MBA class in 2001 AND in 2002. Etc. Its rather silly to contest this. Several of my Stern classmates had their Bain, BCG, etc consulting gigs pushed back to later and later dates until many just gave up. And this was for the whole class, not just particular people.

Look. If you start turning over rocks, you are going to find an endless number of ways in which life at the large 'elite' firms sucks. It is an environment that is toxic to most sentient human beings. If they paid 1/2 as much, no one would work there. The hours, the essentially dull work that makes up most of what they do, the huge stress (much unnecessary and self-imposed by partners and sr. associates), the back-biting and information hoarding for self-advancement. Partners poaching clients from each other and fighting over who is the "billing partner," the we-are-a-family-with-a-culture bullshit that utterly is revealed as the sham it is when the economy stumbles and they eat their own and toss the bones out onto the street.

The latest incarnations of lousy behavior, odd business decisions, poor management, lack of strategic planning, plain insensitivity, is just the most recent set of examples of why life in these places is tough as hell and very highly compensated.

Stroock's clients will be happy that there will be no billable hours attributed to first year associates who are doing what amounts to glorified paralegal work.

kylewest, that is a different, and very valid, argument. I'm just saying that a large number of well-paid people won't be entering the work force.

compared to finance, it hasn't been extremely highly compensated, except for a small number of people.

i actually support lock-step. it seems to equalize pains and gains, unlike the eat what you kill models.

jason, i was talking about the LAW. not finance. i did mention ubs, forgive me, but the real difference compared to the past here is the law.

There is a fundamental difference between not hiring summer associates and telling people who have job offers not to come. Soft offers are hiring decisions based on a firm's needs and the associates' performance and yes firms have done this for a long time. Why would you make an offer when you don't need someone? But this is telling folks who have spent their third year not looking for jobs in reliance upon an offer that there is no offer. I don't know if it is unprecedented and Stroock may not be a good example of what's going on the market. But the number of firms and the size of layoffs this time IS different. It is bigger and deeper and only logical, given the businesses many NY firms represent (banks, ibanks, hedge funds).

nothing like getting fired before you start. hope no one signed leases in anticipation of starting new job.

Ok, don't know about law aboutready. I was just suggesting that law firms might think its ok because banks and consulting firms have done it...

Aboutready: There have been very significant cuts at many firms with large offices in New York that expand far beyond the three that you mention. Large fims that have laid off lawyers in New York City include Latham, White and Case, Allen and Overy, Orrick, Proskauer, Sidley, Dewey and many more. It's not hard to guess that firms that have already laid off lawyers are likely to do so again, and it seems likely that firms that haven't engaged in layoffs will do so soon.

bicpens, i was talking about in the past. yes, you are absolutely correct.

jason10006, that's my point, they generally think they're above that sort of thing, not having shareholders and the like to report to. biglaw still consists of partnerships. it's quaint, but it's also small and often shares the wealth and the pain (to some extent). that's exactly why i'm using them as an example of how this is a bit different. some biglaw firms have had cuts in the past, and they were viewed horribly as a result.

I have been at a "top 10" firm (according to vault) for better than 10 years, which qualifies me for nothing, but one thing I have noticed during that time is that law firms tend to lag the broader economy--up and down--by six to eight months. And, with very few exceptions, they are not well-run businesses, which is to say that the leaders of law firms tend to be great lawyers, not great businesspeople. As a result, when attempting to deduce the state of the economy, I take with a grain of salt any moves made, or not made, by law firms. Of course, since I'm a lawyer myself, there's a bit of irony in any suggestion that you follow my mantra.

Washington is in ,Wall Street is out. The gov't is the capital markets. The D.C. Law firms must be doing better... Donald Trump just bought, The Lowes Island Golf Club.

stlblufan, funny and correct. they are laggards. but they are lagging, and lagging, and lagging. you get my point.

and they are not well run businesses, except that at the better run law firms i've seen profits down by about 15-25% (don't bring up cadwalader, not well run)? Even given collection issues? My husband's firm actually has an increase in billables of about 15%, but the banks (and some others) aren't paying their bills, so they are breaking even, just about. that seems pretty damn good, compared to corporate america. and yet they cut.

I'm too tired and lazy to read this whole thread, but the NYT had a fluffy article recently about Skadden giving mid-career associates something like 60% of their base to go away for a year or two. The article didn't mention any precedent for this, from what I recall.

AR, I agree with you, I guess my hope is that all of the recent craziness is not indicative of the current state of the economy -- i.e., we might be at or near a bottom. Here's to hoping.

Alanhart, if memory serves, Skaddan is offering 1/3 salary for people to go away for a year. I understand that, while "voluntary" in spirit, the reality is somewhat different.

1/3 sounds familiar -- my, as the kids used to say in the 90s, bad.

A friend of mine recently told me over brunch that his office manager had gotten on his case about tardiness in submitting his time sheets. He said his reply was "What does it matter? They aren't paying us anyway" (the client, that is)

It's not just a matter of revenues and profits, but also the increased costs that many firms have taken on in the last couple of years. Many firms have brought in huge summer classes each of the last 3 years, thereby increasing costs and hurting profits. The number of law students that will intern this summer may still be bloated compared to the actual need. In addition, because of the slowdown, many junior associates aren't necessarily getting the experience that ordinarily would allow them to grow into successful midlevel associates. How does an associate like that (assuming their billing rate goes up each year) going to deliver value to the client? Given that the law firm leverage model means that most of the lawyers at a firm are the junior lawyers, what is a law firm going to do with these associates? Even if the economy has hit bottom, barring a steep and heated recovery, it's hard to see how law firm staffing has hit bottom.

no alanhart, their bad.

stlblufan, i don't know where you are, or how far you are in the process. i can only say that if you haven't hit that equity partnership yet, after 10 years, you are so not alone. it took my husband FOURTEEN or so years to make equity. It's hard, and it changed in 1997, when the Greenspan machine took off. Dramatically. Best of luck.

bicpens, you are correct. but even as an not so great machine biglaw made a lot of maoney. yes the costs were high, and they can be trimmed fairly easily (but painfully. and remember, these are partnerships, once somebody goes apeshit everyone will). I totally think that further emplyment cuts are inevitable.

the one area where you are wrong is in assuming the importance in the billings of the junior associate. clients hate to bill for juniors. they would be happy to bill for 4th or so years. The model will change, but not the way, I think, that people are talking.

What is that curse? May you live in interesting times! I think the law firms (big and little) are trying to find their way. As with banks - firms make money, a lot of money, on their "human capital" - associates who get billed out for hundreds of dollars an hour. Putting off start dates, inviting associates to go on leave for a year, etc - are all ways to cut cuts while preserving the ability to quickly fill the ranks when work comes in. The sweet spot for firms is fourth year and up - when clients don't mind paying the bills (because they assume that the associates know what they're doing). Cutting or deferring juniors for a law firm might hurt recruiting - but it's a way of trying to preserve short term partner profits. (As aboutready notes - clients hate to pay for junior work.)

I am a senior associate working at a "top 10" law firm - no layoffs (stealth or otherwise) yet - but they are cutting costs. Since my firm never leads - it won't be the first to start cutting associates - but as soon as S&C, or Cravath cut - so will my firm. My only blessings at this point: I do litigation and my cases will keep me busy for a while (although I know people at other shops where litigation is dead); and I have some cash put away (which I was going to use for a down payment - but could keep me off the soup lines for a little bit).

I hope we are near the bottom - but who knows! Best of luck everyone!

october, good luck to you as well.

btw, litigation and m&a/pe/restructuring/bankruptcy are picking up. those animal spirits.

october no answer necessary just wondering, DPW or STB, perchance?

one thing that working at Arthur Andersen showed me was that in tough times, partnerships and corporations act VERY differently when it comes to personnel decisions.